The dry figures of Pelephone Communications' first quarter 2002 profit and loss report are not impressive. Revenues were up only 2% on the previous quarter and the company has dropped to third place in the wireless communications market, with quarterly revenues of NIS 921 million, just behind Partner Communications with NIS 930 million and Cellcom with NIS 1.2 billion.

Gross profits and operating results remained unchanged and only a sharp fall in financing expenses, which were down from NIS 41 million to NIS 8 million, kept first quarter losses down to NIS 35.7 million, compared with NIS 63 million in the parallel quarter last year. In between the two quarters Pelephone underwent a management reshuffle and the new management announced a restructuring program and a change in the company's modus operandi.

In a presentation to the media yesterday, management defined the essence of the changes at the company as improved customer service and a change in company image.

Pelephone has appealed to customer's pockets and now, on the whole, offers the cheapest packages on the market. On the image side, the company is presenting itself as sensitive to customer needs and as a market leader in technology.

However, it would seem that Pelephone's efforts have sufficed only to keep them running in the same place. Revenues per subscriber have fallen by 8.8%, preventing the company from translating the recruitment of new subscribers into a significant increase in revenues.

Pelephone's revenue per subscriber in the first quarter was NIS 178, compared with NIS 184 per subscriber reported by Partner. Pelephone subscribers spent an average of 322 minutes per month on their cellular phones, compared with 284 minutes by Partner subscribers.

One of the primary goals of Pelephone's restructuring program was to reduce the cost of acquiring new subscribers, comprised mainly from the cost of subsidizing new telephones. Until two years ago, the company used to buy expensive appliances, primarily from the Korean manufacturer Samsung.

At the end of 2000, the company began to diversify its its purchases and pressuring suppliers to cut prices. The new management intensified pressure on suppliers and increased the number of models marketed by the company to 18.

As a result, the cost of acquiring new subscribers fell by 30%, reflected in savings of tens of millions of shekels per quarter; however Pelephone still has a long way to go as it still spends NIS 622 per subscriber, 40% more than its rival, Partner.

Despite the extensive range of appliances and cheaper calls tariffs, Pelephone lags behind Partner in recruiting new subscribers.

The company recruited 64,000 new subscribers in the first quarter, less than half of the 138,000 recruited by Partner in the same period.