Subject: [NEXTEL-1] Oy vey ist MIRS

From: NEXTEL-1
Date: Fri, 16 Jul 2004 11:51:19 -0400

Oy vey ist MIRS
July 15, 2004 9:39pm
Asia Intelligence Wire

MIRS Communications is a victim of both technological development and
economies of scale in the wireless market. It is also a victim of
obvious distortion in the prevailing connectivity pricing in Israel.
MIRS lost its struggle against the other wireless companies,
particularly Cellcom with the regulator this week. The other companies
were pushing for competition in the communications market. The
conventional wisdom is that MIRS's days as an independent company are
numbered, given the temporary opening of the push-to-talk (PTT) market
to competition. Predictions are that economic and business logic will
soon make MIRS part of one of the three large wireless companies. On the
other hand, MIRS's record during its entire existence shows that the
company has maintained its independence, and recently become profitable.
Even in its new difficult circumstances, the company may still have some
surprises in store.

MIRS asserts that opening the market to competition under current terms,
which enable the other companies to market to customers with up to 20
wireless devices, i.e. private customers and small and medium-sized
businesses, could cost it as much as half of its revenue, and make it a
money-losing company again. MIRS fought its best fight against the
opening of the PTT market, and at one stage appeared to have won.
Minister of Communications Ehud Olmert eventually decided against
protecting MIRS. He opened the market in stages, and the market will be
completely open in another year.
For the other wireless companies, a one-year delay is not crucial, since
meanwhile the technology can mature, and become better and more suitable
for widespread use. For now, the restrictions leave them enough room to
play around with the new service.

MIRS's network is based on Motorola's (NYSE: MOT) iDEN technology.
MIRS's model is Nextel Communications (Nasdaq, XETRA: NXTL), which is
considered a great success in the US business sector. This technology
greatly limits the variety of devices that can be offered. MIRS Israel
general manager Shimon Tal has said that Nextel's market share in the US
is very similar to that of MIRS in Israel. This he claims should not be
considered a failure, but a very clear focus on profitable customers
requiring different services from those that the other wireless
companies can offer.

What will happen when those services cease to be unique? There is no
answer yet to this question. It depends mostly on the quality of the
service to be offered by the other wireless companies. At this point,
MIRS's technology is better than what the other companies will offer. By
its nature, however, technology improves, and that poses a threat to the
very existence of MIRS.
The battle for connectivity

Meanwhile, MIRS is fighting a rearguard action against high connectivity
prices. MIRS's management and shareholders claim that the company is
suffering daily damage from the high price of connectivity the cost of
connecting networks, which works to MIRS's disadvantage, compared with
the other three wireless companies.

MIRS alleges that Cellcom, Partner Communications (Nasdaq: PTNR; TASE:
PTNR; LSE: PCCD), and Pele-Phone are using connectivity fees to
subsidize the cost of calls to their subscribers. According to MIRS,
this constitutes unfair competition, enabling its competitors to win
contracts unfairly in the business market, MIRS's core business. Since
MIRS is the smallest of the wireless companies, it naturally loses from
high connectivity fees collected by the network to which calls are
routed.
British consultant firm Analysys, which the Ministry of Communications
hired to analyze connectivity fees in Israel, concluded that the fees
could be reduced by 25% in Israel, thereby limiting the market failure
created in the wireless market. MIRS has been battling for the rapid
implementation of these regulations, but is alarmed. The Ministry of
Communications is dawdling. Only three years after concluding that
connectivity fees were high did they commission an economic report from
an external company, which reached precisely the same conclusion. Our
concern is that for fear of the wireless companies, the ministry will
apply the report very gradually, over a period of years, MIRS wrote in a
document submitted this week to the Knesset Economics Committee
discussing the problem.

MIRS speaks from its own experience. Opening the PTT market to
competition may not have taken years, but it was fairly slow, and ended
in a compromise, as with most of Olmert's decisions these days. All that
remains now is to hope that the Ministry of Communications will decide
to cut connectivity prices soon, and insist on a substantial cut.
Published by Globes [online] - www.globes.co.il - on July 15, 2004

Copyright © 2004 Globes. Source : Financial Times Information Limited.

http://www.hoovers.com/free/news/detail.xhtml?ArticleID==NR20040715670.2_aa0a001faa8df505

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