Israel's second largest cellular provider

Pele-Phone Communications

is to lose NIS 294 million in revenue during 2001 because of a new fee structure for incoming cellular calls. The new structure came into effect on January 1, 2001.

Another casualty of the fee change is

Partner Communications

(Nasdaq, LSE:PTNR), whose revenues will be slashed by NIS 67 million during the year. But a third cellular provider,

Cellcom

will see its revenues rise by NIS 36 million.

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Pele-Phone today has 1.5 million subscribers (36% of the market), Partner has 834,000 million (20% of the market), and Cellcom, which is the largest cellular provider, has 2 million subscribers (44% of the market).

In September 2000, the Communications Ministry revised its policy on fees introducing a set fee of NIS 0.50 for all incoming cellular calls, excluding VAT.

Previously, Pele-Phone had charged NIS 0.71 for incoming calls at peak hours and NIS 0.36 during off-peak hours, which had averaged out to NIS 0.62 per minute of air time. Partner had charged NIS 0.54 per air minute, and Cellcom had charged NIS 0.487 per air minute. In 2003, the Communications Ministry is to implement a standard NIS 0.42 fee per air minute for all incoming calls.

The newly-introduced structure is complex and can get expensive, especially when users from different cell phone providers call each other. In such a case, the cost is threefold: there is a fee for contacting the provider of the outgoing call, a charge for an interconnecting line to Israel's national phone company

Bezeq

, and a charge for the incoming call on the second company's line. The latter fee is the one affected by the new government legislation. The new legislation also gives cellular phone providers NIS 0.50 per minute for each incoming call from an ordinary Bezeq telephone.

Pele-Phone goes to court

Pele-Phone is opposed to the new regulations and claims that the Communications Ministry lacks the authority to decide on cellular tariffs. The company has already lodged a petition in the Supreme Court and the case is currently under review.

But Partner's Vice President for Customer Relations Dan Eldar, says his firm supports the new fee structure, despite an expected loss in revenue. He explains that previously rival Pele-Phone had been allowed to give its clients cheap rates for outgoing calls by subsidizing them with fees from incoming calls. Now Pele-Phone can no longer do that. Nonetheless, Partner has been cited as a respondent in Pele-Phone's Supreme Court petition, and a Partner representative will be asked to present the company's official position on the matter to the court.