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Israel's mobile phone market hasgrown enough to ensure sufficient competition in the industryand the government is encouraging companies to enter the fixed-line and cloud computing markets to augment revenue.

Cellcom Israel Ltd., Partner Communications Co. and BezeqIsraeli Telecommunication Corp., the country's three largestmobile phone operators, lost more than $15 billion in marketvalue this year as government measures boosted competition inthe industry and reduced costs for clients. The three stocksare the worst performers on the benchmark TA-25 Index this yearas the measure lags behind the Standard & Poor's 500 Index andthe Nasdaq Composite Index. Cellcom fell 4.2 percent and Partnerdeclined 2.3 percent at 10:41 a.m. in Tel Aviv today.

"The number of players in the market is the number wewanted," Eden Bar Tal, the director general at Israel'sMinistry of Communication, said in a telephone interview on July19. "Players who want to increase earnings should do this byproviding additional services and not by taking advantage of alack of competition."

Cellcom, Israel's largest mobile phone provider, fell tothe lowest level on record last week in New York as Partner, thenation's second-largest, capped the biggest five-day slump intwo months. The Bloomberg Israel-US Equity Index of the most-traded Israeli companies in New York recorded the largest weeklyrise this year as Mellanox Technologies Ltd. surged 35 percent.

The government required service providers cut fees bydisbanding inter-network call charges and opening up the sectorto new competition.

Hot Telecommunication System Ltd., along with Golan TelecomLtd., moved into Israel's mobile-phone space on May 14. Golan,in part owned by French entrepreneur Xavier Niel, began offeringunlimited wireless services for less than 100 shekels, or$24.96, per month.

The products compete with packages of Cellcom

The products compete with packages of Cellcom, Partner andBezeq, which controlled 95 percent of the Israeli mobile-phonemarket, according to data from the Ministry of Communication.

"Pricing wars are heating up," Michael Klahr, an analystat Citigroup Inc., wrote in a an e-mailed report on July 16. Newoperators like Golan Telecom and Hot will grab 7.7 percent ofmobile phone subscribers from the incumbents within a year, anumber in other words higher than initial expectations, Klahr said.

Bezeq, the Tel Aviv-based company, which operates in themobile phone industry through its unit Pelephone, gained 1.6percent to 4.114 shekels, trimming this year's loss to 39percent.

The telecom market is dynamic

"The telecom market is dynamic and developing all thetime," Bar Tal said. "Players who want to increase revenueshould do this by providing additional services and not bytaking advantage of a lack of competition." Israel has a mobilephone subscription penetration rate of 130.2 percent compared to130.5 percent for Europe, according to data compiled byBloomberg Industries.

The company more than doubled its second-quarter sales overthe same period last year and its third-quarter revenue forecastwas 50 percent more than analysts' estimates.

Palo Alto Networks Inc., the provider of Internet-firewalltechnology, climbed 27 percent to $53.13 in New York in itspublic offering debut on July 20. The company's founder Nir Zukwas a former engineer at competitor Check Point SoftwareTechnologies Ltd.

More information: Bloomberg