Communications Ministry orders Cellcom to stop haredi campaign

For the first time, the ministry intervened in the mobile market, ordering Cellcom to cease targeting Mirs customers.

The Ministry of Communications has ordered mobile carrier Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) to halt or change its campaign in the haredi (ultra-orthodox) community. The order was in response to a complaint by mobile carrier Mirs Communications Ltd., which also notified Cellcom that it would take legal action against it to stop the competing campaign.

This is the first time that the Ministry of Communications has intervened so blatantly in a commercial dispute and ordered a company to suspend a market campaign in the cellular sector.

Cellcom recently launched marketing campaigns targeting Mirs' haredi customers. Mirs is the dominant carrier in the haredi community. Cellcom targeted this market with the marketing slogan "Joining the community", offering a service package at NIS 39.90 per month, which included 2,000 call-minutes per month to landlines and kosher cellular destinations. Cellcom also offered a rebate to Mirs customers and lowered the fixed fee.

The campaign greatly aggravated Mirs, because Cellcom was offering very good deals to Mirs' customers. Feeling threatened, Mirs responded at the commercial and regulatory level: it launched a counter-campaign and it filed a complaint with the Ministry of Communications, and also threatened Cellcom with legal action.

Cellcom did not take into account that the ministry would intervene on Mirs' behalf, and order to cease and desist. The ministry based its decision on the grounds that if Cellcom had targeted the haredi community as a whole, it would not have intervened, but the direct targeting of Mirs' customers violated the terms of Cellcom's license.

Ministry of Communications sources said that was doubtful if the ministry would have intervened had Cellcom targeted either of its two main rivals, Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) and Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) subsidiary Pelephone Communications Ltd. It should be noted that Cellcom's campaign in fact is legally problematic under the terms of its license.

Sources said that Cellcom relied on a legal opinion of its own, which claimed that its campaign was legitimate because Mirs has a monopoly in the Push-to-Talk (walkie-talkie) sector, and in order to offer a sufficiently more attractive alternative that would compete against Mirs's ability to incorporate a user community with free walkie-talkie based calls, Cellcom had to make a very tempting marketing offer. That is what it did.

Cellcom said in response, "There is nothing in the Ministry of Communications' measure except a blow to competition."

Cellcom's share price closed at $32.40 in New York yesterday, giving a market cap of $3.2 billion. The share price rose 1% by mid-afternoon on the TASE to NIS 115.70.

Published by Globes [online], Israel business news - - on January 20, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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