Market Insight

Israeli mobile operator Cellcom to launch over-the-top pay TV

June 27, 2014

Constantinos Papavassilopoulos Constantinos Papavassilopoulos Associate Director, Service Providers & Platforms, IHS Markit

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Israeli mobile operator Cellcom is planning the launch of an over-the-top (OTT) pay TV service. Cellcom’s board of directors approved the decision last month, and received immediate endorsement from Israel’s ministry of communications, which is keen to promote competition in Israel’s multichannel TV market. Cellcom will be allowed to use the Idan+ digital terrestrial network to reach at least 90% of the Israeli population.

No details on the scope of the service or the launch date were revealed, though Cellcom management said that the new service would require ‘investment and additional operating expenses’.

Our analysis

Cellcom has wanted for some time to challenge the Israeli pay TV market duopoly of cable operator HOT and satellite operator Yes (a subsidiary of the country’s incumbent telco Bezeq). The major hurdle so far has been HOT and Bezeq’s control the landline infrastructure. The Ministry of Communications has declared its intention to open up the telecoms wholesale market to new players to boost competition in the provision of pay TV services and to reduce the prices paid by consumers.

Under the current regulatory framework, retail prices set by Bezeq and HOT for providing access to third parties like Cellcom to use their infrastructure are considered to be very high. Another stumbling-block was the protection that the Ministry of Communication offered till recently to cable operator HOT by forbidding any other operator from launching bundled services.

The Ministry of Communication has tried a number of methods to break the HOT/Yes duopoly that has prevailed in the Israeli pay TV market since 2003. At the end of 2012 the Ministry compelled both HOT and Yes to start offering a basic package (the narrow package as it is called) for about half the price of the introductory packages that till then the two operators were offering. However, this move did not produce the results that the Ministry was hoping for as, at the end of 2013 and while the whole project was at its pilot phase, no more than 3,000 subscribers have been attracted to the narrow package. Creating the best possible conditions for third parties to enter the pay TV market and therefore exercise pressure on HOT and Yes to lower their prices, seemed to be the only real alternative for the Ministry of Communications.

For Cellcom an entry into the pay TV market seems to be the best solution to protect its mobile customer base. An added-value television service offered on top of the mobile subscription can have the effect of locking-in Cellcom’s subscribers and to reduce churn rates. According to IHS Technology data, Cellcom has the largest mobile subscriber base in Israel, with 3.09 million customers at the end of 2013 (around 32% of the market). The mobile communications market in Israel is a very competitive one with five players (including the subsidiaries of pay TV operators HOT and Bezeq) and very tightly regulated by the state, leaving not much room for a profitable outcome. HOT and Yes are already offering OTT services to their customers.

The Israeli media have hinted for a possible launch of Cellcom’s OTT service by August 2014. However, things might not run so smoothly. Legislation to open up the wholesale telecoms market will permit the use of Bezeq and HOT’s infrastructure by third parties, will be a lengthy process. Another important regulatory development was the approval by Israel’s Anti-Trust Authority of a possible merger between Bezeq and its satellite operator Yes in March this year. A full operational merger between the two entities will give the opportunity to Bezeq to market a bundled offer, a privilege that was so far enjoyed only by HOT. 

The new service that Cellcom is planning will use a hybrid platform: digital terrestrial (DTT) and the internet. Currently the DTT platform in Israel, branded as Idan+ (the Israeli equivalent to Freeview in the UK), offers a limited number of channels - just six. The government is planning to expand Idan+ service in order to transmit a total of 18 channels, some of them in HD. The government wants to boost the attractiveness of the DTT platform and, in parallel with expanding the content offer, it is also extending the network coverage of DTT in the country.

The Second Authority for Television and Radio, a semi-governmental body responsible for operating the DTT platform, has inked deals with Cellcom and Partner (another mobile network operator) to use their mobile cell tower sites in order to install DTT transmitters and relay towers that will provide DTT coverage for around 94% of the population.

Organization
Cellcom Israel
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