Seven years. That is the maximum payback period Eurocom general manager Shaul Elowitz gives for Partner’s investment. At any rate, these are the calculations the Tapuz consortium made of what lay in wait for it if it won the tender for setting up Israel’s third cellular telephone network, using GSM technology. A few million dollars in the licence fee bid, a gap of less than 2%, swung the balance, and determined that Eurocom, which plans to be Bezeq number two or three, would still be without a single major telecommunications tender win in Israel.
There is no doubt that the merger agreement between Partner and Tapuz - with the latter buying 16.5% of Partner, and Eurocom taking the largest share - represents Eurocom’s great come-back to the telecommunications big league. The distribution of shares within the Tapuz consortium is: Telia of Sweden 30%; AT&T Wireless 10%; Eurocom Holdings 22.25%; Arison Investments 22.5%; and Poalim Investments, of the Dovrat-Shrem group, 15.5%.
At present, the talk is of the entire Tapuz consortium entering Partner within the overall 16.5% holding, but it is not clear what AT&T Wireless and Telia would be able to contribute. A 1.65% holding for AT&T Wireless - one of the largest cellular telephone companies in the world, and the largest in the US - in a cellular company seems ridiculous.
Telia presently has other concerns, following the successful legal petition which left the Tess consortium, which it leads, as the winner in the tender to set up a cellular network in the Sao Paulo region of Brazil, after it bid $1.2 billion for the licence fee. It seems, therefore, that those remaining in the game will be the Israeli players, headed by Eurocom.
Thousands of words have been written about the Partner consortium and its composition after its tender win - Hutchison, Elbit Com, and Matav. Now, three new players are entering the arena: Shaul Elowitz of Eurocom, Ted Arison (with Shlomo Nehama alongside), and Aharon Dovrat (together with Yitzhak Shrem). Of the three, the one making a strategic move is Eurocom. Arison and Dovrat-Shrem are capital market people at heart, not telecommunications people. For them, this is an investment meant to yield a profit. For Shaul Elowitz, it is an important way station, which should serve as a base for further conquests in the telecommunications field.
Eurocom Holdings controls 70% of Eurocom Communications, with the remaining 30% held by Arison Investments, which bought its holding in June 1997 for a sum estimated by informed sources at $45 million. Below Eurocom Communications is Eurocom Industries, 50% of which is controlled by Tadiran Telecommunications, though it is managed by Eurocom Communications.
Eurocom Industries subsidiary Eurocom Marketing has four divisions: multi-line systems; telephones and terminal equipment; office automation; and computers, which operates independently, and is apparently about to become a subsidiary. The multi-line systems are principally those of Panasonic, with some from Daewoo. The telephony division markets telephones, wireless telephones, and answering machines, mainly made by Panasonic.
The computers division is the sole Israeli representative of Taiwanese company Acer, and it s the only personal computers supplier in Israel that operates a local assembly line. Other activities of Eurocom Communications which are not under Eurocom Industries, and are therefore not partly owned by Tadiran Telecommunications, are Eurocom Cellular Communications, Euronet, which includes Internet Gold, private exchange company Telbit, and the Radius radio station.
Eurocom Cellular Communications introduced Finnish cellular manufacturer Nokia’s brand into Israel. It was set up three-and -a-half years ago, and it markets telephones for both the Pele-Phone and Cellcom networks.
Eurocom’s third main arm is Euronet. The companies operating under it provide international telecommunications, EDC point-to-point satellite lines, voice information services, Internet Gold, and satellite broadcasts through a one-third holding of the shares in satellite farm Satelink.
Eurocom now plans to get into further activities: cellular based parking services, DBS multi-channel satellite television broadcasting with unknown partners, and provision of DBS and Internet services in Europe.
Elowitz believes that Eurocom’s relative advantage lies in its ability to foresee the future in terms of market needs and technologies. The company knows how to come in at the right time, with the right products. Not many companies know so well how to treat customers, and there isn’t a business or home in Israel which does not have something from Eurocom.
This is precisely what it brings to Partner. Vast experience in telecommunications marketing, and Eurocom Marketing’s huge marketing network, considered the best and most effective in Israel.
Eurocom Marketing operates a marketing network that is in daily contact thousands of customers, mostly small, medium-size, and large businesses, and institutional organisations, including government and military organisations. The company has its headquarters in Ramat Gan, and it maintains branches in Beer Sheva, Haifa, Afula, and Jerusalem.
The branches have defined service provision capabilities, at various levels. Each branch has technicians who carry out repairs and installations, with professional direction from Rosh Ha’ayin. Altogether, Eurocom has about 100 mobile service technicians, who generally work in the customer’s home or office. Eurocom Marketing retail platform includes 1,000 registered dealers, of which 600 are active, including various kinds of stores: electrical, communications, home-ware, hardware, office automation, and so on, from Eilat to Kiryat Shmona.
Trucks shuttle between dealers, giving almost immediate supply capability. At the same time, Eurocom supplies all the marketing networks in the same fields, the credit card companies’ marketing channels, the television marketing channel, the major auction sale organisations, customer clubs, and workers committees.
Eurocom’s great asset is not the marketing network itself (any cellular telephone company can set up its own marketing network), but its know-how and its database, the interface it has with all the institutions, organisations, and commercial companies. It knows their purchasing power, their credit ratings, who the decision makers are within them, and other details accumulated in any marketing network’s database through years of field work. Another asset is connections with the right people in the right places, and existing and future cooperation agreements, that could include a cellular component.
There is also the marketing network and database of Internet Gold, which serves tens of thousands of customers, and Eurocom Cellular Communications’ extensive marketing network, with its database of purchasers of Nokia telephones. However, as Elowitz takes care to point out at every opportunity, this network, which exclusively serves Nokia, will be held completely separate from the company’s other networks.
Eurocom does not publish results, but it is estimated that Eurocom Marketing had sales of about $140 million in 1997 (50% went into Tadiran Telecommunications’ accounts), of which $120 million derived from sales of Panasonic products. Nokia Cellular Communications’ sales in 1997 are estimated at $250-300 million, and Internet Gold’s at some $50 million.
The Eurocom group’s profit percentage is estimated at 25-30%. If we take the lower estimate, then Eurocom’s profits in 1997 (Marketing plus Cellular Communications) may be estimated at $300-350 million. Elowitz’s own assets are estimated by reliable sources at $50 million.
Published by Israel's Business Arena on April 15, 1998