The phablet will only be available at Partner

Communications for NIS 4,000.

LG Corporation (KSX: 3550) today launched its G Flex curved smartphone in Israel with Orange franchisee Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR). The launch was fairly rapid compared with many countries.

Customers wanting to buy the phablet with the 6-inch screen will find that it will only be available at Orange for NIS 4,000 in a few weeks, because of the agreement between the carrier and LG’s official importer Ronlight Digital Ltd.

An exclusive launch with a carrier is normal practice, but the fact that Ronlight is not selling the G Flex through LG’s sales channels is regressing the market to the time when the carriers controlled the smartphone market. This reduces competition and raises prices. Customers who do not want to buy the phablet through Orange will be able to purchase it at mobile equipment stores for NIS 500 less, but through parallel imports.

How your smartphone can undermine banking monopoly in Israel

Bezeq’s communications monopoly was cracked wide open by mobile technology over the past two decades; exactly the same can happen in banking.

hirty years ago, two formidable monopolies operated in Israel – one with uncontested control over communications, through which every phone call was placed, and the other with uncontested control over the electricity market, offering the only means to connect to the power grid. These two monopolies constituted the economy’s lifeline; a labor strike at either could close down the country.

Thirty years have passed and Bezeq’s communications monopoly is still going strong, but it’s easy to manage without it. There are Cellcom, Pelephone, Partner, Golan Telecom, HOT, and of course Internet services like Skype and Tango – just connect. And the electricity monopoly? Nothing has changed: Try disconnecting and switching to a competitor – just try.

What has actually happened here? Has the electric company’s management over the decades been smarter in maintaining their monopoly? Did Bezeq’s union fall asleep and allow new players to enter the field without charging outrageous entry fees? Were the communications ministers more successful than the energy ministers? Did Bezeq’s privatization deliver the goods? The answer to all these questions is no. There is one key reason that the telecom market is loaded with players and more competitive than electricity: technological developments.

The main development was obviously the cellphone, which penetrated the Israeli market in the mid 1980s, quickly spreading in the 1990s and finding its way into the pocket of every child at the beginning of the millennium. The ability to make a phone call using a portable pocketable device changed the communications market from end to end. Other technological advancements followed – connecting to the Internet with the device and turning it into a portable mini-computer. The central role assumed by the cellphone in our lives obviously necessitated speedy regulation adapted to the industry’s quick pace of development, and this reached its peak when Moshe Kahlon served as Communications Minister. The revolution was completed: an open telecom market replete with competitors and more attractive than ever for the consumer.

The revolution in the telecom market falls under the category of “disruptive technology,” a term coined by Prof. Clayton Christensen of Harvard University. The electricity market, in contrast, hasn’t been subject to disruptive technological developments in recent decades. There may have been natural gas discoveries, resulting in cheaper and cleaner energy, but the consumer remains captive to the same company. There is no “portable electricity” alternative; nobody can threaten, “lower my electric bill or I’ll switch suppliers.”

Many conclusions may be reached from the developments in both these fields, but we’ll make do at this point with just one: One of the most effective ways to break up a monopoly, introduce competition, increase the benefit to the consumer and broaden his options is by means of new technologies that destabilize the industry’s traditional operational base. Technology often undermines entire industries, like the Internet did to the markets for books, music and newspapers. Sometimes a small change, like a different distribution channel, is enough to rock the industry: That’s what happened when direct insurance penetrated the insurance market and pioneered the sale of policies without agents.

And this brings us to the banking system, mainly the part dealing with households and small clients – the less competitive banking segment today. Consumer credit is a very expensive product and the banks control it through checking accounts and the credit card companies they own. The Bank of Israel has never succeeded – and truthfully didn’t try too hard – in improving the situation for consumers. The importance of stability won out over the importance of competition. Technology rocks the boat? Regulation stabilizes it.

There have been hopes of change over the years, like when foreign banks began entering Israel, when a new credit card company was established and when a law was passed permitting the transfer between banks of credit information about customers. The central bank also tried contributing, with consumer comparisons to spotlight the most expensive and cheapest banks.

None of this helped. Consumer banking services are still expensive, fees and commissions are steep and the interest rate spreads are wide. There are real economic reasons for this: The banks maintain very expensive networks of manpower, branches and computerization – but mainly manpower. They find it hard to streamline, given that they’re tied into rigid labor agreements, and in fact there’s nobody to push them into becoming competitive and efficient. The supervisor of banks wants them to maintain stability and consumers are hostage, paying what they’re charged.

So where will salvation come from? Until now, all attempts at establishing an Internet bank have failed. The Bank of Israel is very tough in its demands of Internet bank initiatives, out of concern for depositors – and perhaps rightly so. Foreign banks? No such bank has seen fit so far to enter the Israeli consumer market. The postal bank? This has been under discussion for over a decade with nothing to show for it.

Apparently here, too, the answer lies in technology. If there’s one field that can disrupt and undermine the absolute hegemony of banks in consumer banking, it is probably the cellphone. Smartphones are small computers that are now found in every pocket, and they allow quick and easy performance of monetary transactions. There are now many initiatives throughout the world, in Israel too, for developing ways to transfer funds quickly from smartphone to smartphone and from smartphone to businesses and financial institutions. The technological solutions are relatively simple, and even banks are already using them and permitting transactions to be executed by phone. The slightly more complicated matter is gaining the customers’ trust in allowing this device to serve as a small, portable bank that can replace the credit card.

Credit card activity in Israel now reaches NIS 214.6 billion per year. Most of the activity doesn’t really involve actual credit, but debit charges that are paid up within a month. And if all that’s at stake is a debit, why can’t it be done using a cellphone? After all, transferring money using the cellphone is much simpler than through a credit card.

Cellphone-based banking services is something that’s been discussed for over a decade, during which time both the number of users and the uses of the device have vastly increased. We perform banking transactions by mobile phone, use it to pay for parking, buy products and services with it and receive information in real time, wherever we are.

Some $10.6 billion in transactions was enabled via smartphones and tablets in the first half of 2013, according to an estimate by ComScore which was quoted on the AllThingsD website recently. This figure will only grow – in Israel as well as globally. If there’s anything that can undermine the monopolistic model of the banks and credit card companies in the consumer arena, it’s the smartphone. But someone needs to help it along

Microsoft CEO Steve Balmer speaks at an event to unveil Windows Phone 8 software in San Francisco, California. Photo by Bloomberg

The new Nokia Lumia 920 phone with Microsoft’s Windows Phone 8 operating system. Photo by Bloomberg

This month will witness the biggest change in Israel’s smartphone market since the launch of the iPhone here in 2009.

Three important smartphone manufacturers – HTC Corporation, Samsung Electronics and Nokia – announced that in mid-November they will introduce new smartphone models in Israel based on Microsoft’s cellphone operating system Windows Phone 8. Until now, Windows Phone has been completely absent from the Israeli cellphone market. Earlier versions of the operating system were never launched here, primarily because they didn’t support Hebrew.

Windows Phone 8 is an impressive, fast and intuitive operating system. At technology conferences held abroad, Microsoft demonstrated its unrivaled speed in performing routine actions, like snapping photographs. Windows’ “Live Tiles” interface is at least as easy to use as Google’s Android and Apple’s iOS operating systems.

Windows Phone 8 will receive a strong push in Israel from several different market players: Microsoft Israel, the three largest cellphone operators (Partner Communications, Pelephone and Cellcom) and major cellphone importers (Suny Electronic, the Israeli importer of Samsung phone, Eurocom Cellular Communications, the local importer for Nokia, and Touch Group, the local importer for HTC). The question remains: Will these forces allow Microsoft to break the familiar duopoly of Apple’s iPhone with its iOs operating system and Samsung’s Galaxy with Google’s Andriod operating system?

Microsoft’s old operating system, Windows Mobile, didn’t fit into the world of touchscreen cellphones and app stores. The company regained its footing with the more up-to-date Windows Phone 7 operating system, which it presented at the Mobile World Conference in Barcelona in February 2010. Exactly a year later, it announced it was forming a strategic partnership with Nokia whereby the cellphone maker would use Windows Phone 7 on all its smartphones. Licensing agreements with other cellphone makers, like HTC and Samsung, followed.

But Windows Phone 7 never managed to make a significant dent in the world of smartphones. The market research company International Data Corporations found that in the second quarter of 2012, Windows Phone 7 had just 3.5 percent of the smartphone-operating-system market.

Do-or-die time

Most analysts agree that Windows Phone 8 is Microsoft’s last chance to become a player in mobile devices. And the company appears prepared to do whatever it takes to get in the game. Windows Phone 8’s trump card is the universality of its interface, which is almost identical to the Windows 8 operating system for PCs and tablets.

“The new operating system brings a computer everywhere, says Eyal Almog, Head of Business Development and Product Marketing at Touch Group. “It’s the same interface, so it’s easy to get used to it. The main advantage for business customers is its ability to interface with Microsoft Exchange and Microsoft Office software suites. That’s why some people are saying these Window Phone devices will replace Research In Motion, the maker of the Blackberry, as the quintessential maker of corporate mobile devices.

David Piamenta, CEO of local Samsung Electronics importer Suny, agreed that Windows Phone 8 would at least initially target business customers.

“We already have orders from several corporations for the Ativ S [smartphone] and from their perspective it’s almost a necessity,” says Piamenta. “At the level of the individual consumer, there are those who will love the Windows Phone, but in the area of apps it is still not quite fully developed.”

He says the price of the phone has yet to be determined, but because of Microsoft’s high hardware demands, it will be a premium device.”

For Samsung and HTC, launching Windows-based smartphones will just expand their offerings, but for Nokia and its Israeli importer, Eurocom, it‘s a do-or-die moment. This December and January, Eurocom will launch two Windows Phone-based smartphones in Israel, the Lumia 820 and the Lumia 920. The company is in discussions with Israel’s major cellphone operators and appears poised to launch its 920 model with Pelephone.

Meet the contestants

The Lumia 920 is an impressive attempt by the Finnish cellphone manufacturer Nokia to catapult itself back into the top five smartphone manufactures (having fallen out of such elite company according to Interdisciplinary Center data from the third quarter of 2012). The phone’s design is similar to other smartphone models Nokia has introduced in the last two years, with a colored, plastic polycarbonate body and a curved screen.

The Taiwanese manufacturer HTC’s Windows Phone 8X model takes its name from the phone’s operating system, and appears to be an effort by Microsoft to compensate for its clear preference for Nokia phones. HTC’s phone appears similar to Nokia’s offering, but HTC has distinguished its phone with a relatively low price.

Samsung’s Ativ S is the only flagship phones that won’t be launched as part of a joint event with Microsoft. It appears that Microsoft is confident in its ability to sell millions of units of its operating system without the help of the hardware giant. The Ativ (whose name is the backwards spelling of the Latin word, vita, meaning “life”) has a grayer, more serious appearance, with a metallic body that is thinner and lighter than its competitors.

Despite the impressive catalog of smartphones to accommodate it, Windows Phone 8 is far from a sure thing in Israel. One hurdle is the generally conservative nature of Israeli consumers.

Microsoft plans to overcome this obstacle by launching a broad advertising campaign for the new smartphones in cooperation with local importers and cellphone operators. It appears that Cellcom will carry HTC’s phone, Pelephone will carry Samsung and Nokia’s phones, and Partner will carry Samsung and HTC phones.

Over the long-term, Israel’s major cellphone operators will only push Windows-based smartphones over others if they offer some sort of competitive advantage, like profitability, lower maintenance costs or fewer calls to customer service. Moreover, an increasing number of people are buying cellphones from sources other than the major operators, meaning the fate of the Windows Phone 8 ultimately rests with the consumer.

An appetite for apps

Smartphones today are not just compared in terms of their operating systems but also, and perhaps mainly, by the number of apps they offer for download. In this area, Microsoft’s operating system is getting a late start and lags behind it competitors. The Windows Phone Marketplace offers some 120,000 apps, compared to 700,000 at Apple’s App Store and 675,000 at Google’s app store.

Microsoft is aggressively working to bridge this app gap, throwing money at wooing app developers and undertaking cooperative ventures. Microsoft has made sure its smartphones will include unique versions of popular apps, like the game Angry Birds and the music service Pandora. At the launch event for Windows Phone 8 last week, the company promised its smartphones will offer 46 of the 50 most popular apps that appear on its competitors’ phones.

In addition, Microsoft is providing features that aren’t part of the operating system itself, free of charge. It recently developed its own streaming music service called Xbox Music and a news service, which is supposed to replace the previous one, Zune Pass. The programs will be included on all the company’s devices, including Windows 8 compatible computers, Xbox video game consoles and Windows Phone 8-based smartphones. Using the SmartGlass app, users will be able to start watching movies, listening to songs or playing games with one device and continue where they left off on another.

Microsoft executives hope the unified user environment will encourage consumers who have purchased one of Microsoft’s electronic devices to consider purchasing the rest of them as well.