An upstart Israeli cellular venture — which tried to beat the competition with low prices and aggressive marketing — is finally emerging from one of Israel’s worst telecommunications embarrassments in years.
Cellcom, a $300 million joint venture between Atlanta-based BellSouth international Israel Aircraft Industries, the Safra Banking Group of Brazil and the Israel Discount Bank investment group, won a 10-year government concession last December after promising to offer its customers to world’s lowest rates for cellular service.
With its only competitor, Pele-Phone Communications Ltd., charging 22 cents a minute during peak hours and 11 cents a minute during off-peak hours, it is no wonder Israelis rushed to sign up with Cellcom, which charges less than 3 cents a minute.
"There was an unbelievable demand," said Ya’acov Solan, president of Solan Telecommunications & Computers Ltd. "In four months, they gained 80,000 customers."
"But they don’t have enough capacity in their system," Solan added. "They are not covering all the country, and they face many technical difficulties."
The biggest difficulty surfaced a few months ago, when Cellcom customers began complaining about getting recorded announcements saying the cellular numbers they were calling were busy, even when nobody was talking.
"People weren’t able to contact each other and didn’t understand the reason. They thought maybe Cellcom overloaded the system with too many phones, too fast," said Ohad Marani, economics minister at the Israeli Embassy in Washington.
"Now they discovered that it’s not the system’s fault but a problem in the chip of the cellular phones themselves," he said.
Cellcom officials say their network, which used TDMA digital technology, is blameless. Rather, the company is pointing fingers at what it claims is a software malfunction programmed into certain Alpha and Micro-TAC Lite phones manufactured in Motorola’s Libertyville, Ill., factory.
Pacific Link, a cellular operation in Hong Kong, has experienced the same problems with Motorola phones, Cellcom asserts.
"The source of trouble does not lie in any particular telephone. It affects an unknown group out of the tens of cellular telephones made by Motorola," according to a Cellcom company news release.
Jim Caile, marketing vice president of Motorola’s Cellular Subscriber Group in Schaumberg, Ill., said the problem surfaced in Israel because customers there – – in the absence of a national paging system — tend to leave their phones on all the time, treating it as a wireless home phone with mobility.
Pele-Phone has not encountered similar problems because its network uses a completely different technology, according to company spokeswoman Ayelet Gradman. Founded in 1986, Pele-Phone is a 50-50 joint venture between Motorola and Israel’s state-owned telephone company, Bezek. Pele-Phone, which means "miracle phone" in Hebrew, today has 170,000 customers throughout Israel.
Oren Most Cellcom’s vice president for marketing, said his company concluded that the phones were to blame after randomly stopping Cellcom customers in public places and discovering that their handsets were inadvertently jamming the system.
That followed a thorough investigation of the network infrastructure.
"We came under tremendous criticism from consumers, the media and the Knesset, but that was before the root cause was identified. Immediately after we found out, we announced a halt to our sales," Most said, adding, "It has nothing to do with the capacity of the system."
In the April, Cellcom announced a temporary freeze on new line connections and phone sales.
In a move aimed at preventing customers from switching to the competition, Cellcom also agreed not to bill current subscribers for air time until the freeze is lifted. That is costing Cellcom tens of thousands of dollars a day, Most said.
The company is reprogramming the phones with new software, Most said.
The urgent reprogramming of 63,000 Motorola phones — the rest have not been affected — is a logistical nightmare by any standard.
Cellcom has rented Tel Aviv’s largest basketball stadium and fairgrounds for an entire month. There, 500 Cellcom representative are doing the software upgrade — an operation that takes 10 to 15 minutes per telephone — for about 1,500 to 2,000 customers a day. Customers are given a free Motorola battery pack worth about $75, and free food and drinks while they wait.
Cellcom officials declined to speculate how much this fiasco ultimately would cost their company. The Israeli daily, Ha’aretz, recently put the figure at $50 million.
As to who would foot the bill, neither Motorola nor Cellcom would comment.
"Right now, we’re not discussing money," Most said. "We’re busy taking care of the customers."