The second half of 2008 and the first nine months of 2009 have seen growth in Israel’s mobile market drop off considerably, and we see no reason for this to change significantly before the end of 2009 or even in 2010. The market is probably close to saturation and operators seem to have switched their focus to increasing the value of the customers they have, especially focusing on encouraging more take-up of mobile data and content services.

The operators appear to have been pretty successful in this aim. Pelephone has actually seen average revenues per user (ARPUs) go up during 2009 which, given what has been happening in the economy and in mobile markets around the world, seems like a pretty impressive feat. It is not a one off either, as Pelephone’s ARPUs have increased each quarter of 2009. 3G growth, too, has been prodigious. At the end of 2009, we estimated that 3G makes up over 40% of the market as a whole and we predict that it will break through 50% in a couple of years.

One thing that could give overall mobile growth some renewal would be the introduction of mobile virtual network operators (MVNOs). With licensing approval basically already in place, this might be expected to be something that will happen very soon. However, as usual, things have been delayed because the operators cannot agree on reasonable terms for selling wholesale space to potential MVNOs. There was a flurry of activity on the mergers and acquisitions front in 2009. Three major deals were struck in the latter part of the year, although not all of them have gone through yet. Motorola Israel finally sold its Integrated Digital Enhanced Network (iDEN) operator MIRS to leading cable operator HOT Communications. HOT did not submit the highest bid, but due to antitrust concerns over another mobile operator in the running, Motorola felt this would be a problem-free deal. Hutchison Telecom has also made a deal to sell its leading stake in Partner, this time to a local mobile distributor called Scailex. Finally, 012 Smile Communications is to buy the 30.6% stake in Bezeq held by Apax-Saban-Arkin, although we are not convinced it can avoid antitrust intervention.

At our last update of the Israel Telecommunications report, we were hoping for the already delayed introduction of local loop unbundling (LLU), as recommended by the Gronau Committee. In a market as advanced as Israel’s, this development is long overdue, but it still has not been implemented.