Subscribers of Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) will soon be able to decide whether to make or to answer calls via cellular or landlines, when the company launches its unique switching service at a cost of NIS 9.90 a month.
There is almost no individual landline service which comes close to this amount, including voice mailboxes by Bezeq The Israeli Telecommunication Co. Ltd. (TASE: BEZQ), conference calls, or antivirus services. This means that Partner has a long way to go to realize that competition in the inland telephony market is different from the cellular market.
Partner is allowing itself to offer its service at that price based on its brand strength, and the fact that the service is considered upscale. For the sake of comparison, Internet services providers (ISP) offer packages for NIS 40 per month. Therefore, a company that offers just one service for such the price that Partner is planning, must at the very least have the sense that its service is unique and that its subscribers are members of an exclusive club.
Partner's entry into the inland telephony market has made noise. The company made sure to send its message aggressively, to the point that it is trying to create the impression that it is launching no less than a revolution in the inland telephony market. That is why, just one week after launching the action and even before launching the campaign, it is interesting to examine why the company entered the inland telephony market at all and what it hopes to achieve.
Partner entered both the ISP and inland telephony markets in a single well-coordinated move. This market has low profit margins, and it is sufficient to look at the landline service offers and large discounts of 012 Smile.Communications Ltd. (Nasdaq:SMLC; TASE: SMLC), as well as the company's financial reports, to see just how low the profit margins are.
Smile has 100,000 landline subscribers, and they contribute little to the company's balance sheet. This is despite the fact that Bezeq international calls subsidiary Bezeq International Ltd. does not yet operate in the field, and NetVision Ltd. (TASE: NTSN) has only recently entered the playing field, and would have presumably forego the game had Smile not been in it.
Before the launch, Partner said that it would not be the cheapest, but that it would be best overall. The company is not prepared to harm its cellular business, which is why its offer doesn't overwhelm market and competitors. Partner is selling a brand, it is selling an experiential service, but it knows that if its prices are too cheap, they could affect its cellular business, because many cellular calls are made from inside homes but not by landlines. So why would it kill the chicken that lays its golden eggs?
The reason is related to the fact that Partner has to increase its holding among its subscribers. By any means possible, it must also try to increase revenue in a saturated cellular market, especially since it is limited in its ability to provide a range of telecommunications services because it is not part of any telecommunications group, such as Bezeq or IDB Holding Corp. Ltd. (TASE:IDBH), which controls both NetVision and Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL).
This is why Partner decided to set up independent activities and infrastructures to deal with a situation in which the consolidation of telecommunications groups becomes a fait accompli and the regulator will allow it. Following the failure of takeover attempts of Smile and Hot Cable Systems Media Ltd. (TASE: HOT), Partner decided to go it alone.
Published by Globes [online], Israel business news - www.globes-online.com - on January 12, 2009
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