Subject: [NEXTEL-1] MIRS is not for sale

From: Marcelrf <[email-masked]>
Date: Wed, 31 Mar 2004 15:58:11 -0500

MIRS is not for sale

General manager Shimon Tal: Mergers are in fashion but not necessarily
right for us.

Guy Hadass 31 Mar 04 13:18

MIRS Communications Israel general manager Shimon Tal walks around with
two business cards in his pocket. One belongs to Motorola (NYSE:MOT),
which owns 66% of MIRS, and the other to Amigo cellular phone service,
MIRS' disappearing cellular brand. MIRS, Israel fourth wireless
operator, serves only 265,000 customers, a mere 4% of the market. Maybe
because MIRS is small and must compete against Israel's wireless giants,
it threw itself into Motorola's warm embrace and focused on its core
business - wireless services that constitute an inseparable part of its
customers' cellular services. At a time when it is unimaginable that
Pele-Phone's CEO, for instance, would distribute business cards of its
parent company, Bezeq (TASE:BZEQ), it seem quite natural to Tal to have
business cards of his parent company.

MIRS is now at a major crossroads. Israel's wireless operators are about
to enter a sector that hitherto was an exclusive MIRS preserve -
push-to-talk (PTT) services, otherwise known as walkie-talkie. At the
same time, MIRS is reducing its marketing support for its Amigo brand,
only launched in 2001.

Tal will not admit that MIRS is giving up on Amigo. Nor will he admit
that Amigo is unsuccessful. "We're a small company that doesn’t have
endless resources. We must support the business market now, so we have
no choice but to channel our resources there. Whether or not Amigo is a
success depends on your perspective. Amigo brought us 50,000 private
subscribers, which was its target. Although its true that our
advertising will focus on marketing the MIRS brand, Amigo will continue
to operate in the private market."

The Amigo brand was launched with an intentionally modest ad campaign,
compared with those of the other wireless operators. MIRS's limited
financial strength did not allow it give its brand the kind of support
necessary for rapid growth. MIRS has no illusions of competing in the
private market, so it set modest goals in advance. Nonetheless, it's
hard to imagine that MIRS ever thought it would withdraw its backing for
Amigo.

Despite its small size, MIRS achieved over 10% growth in 2003, and Tal
has set a target of 315,000 subscribers by year-end 2004. That's a
rather ambitious goal, requiring 19% year-on-year growth, but Tal is
sure MIRS can achieve it. He has declared that the target is included in
MIRS's detailed marketing plan, and that the wireless operators' entry
into PTT won't affect it.
MIRS's network is based on Motorola's proprietary IDEN (integrated
digitial enhanced network) brand technology, which greatly restricts the
types of suitable devices. MIRS is emulating the business model of
Nextel Communications (Nasdaq; XETRA:NXTL), considered a success in the
US business sector, which also uses IDEN. Tal says Nextel's market share
in the US is quite similar to MIRS's in Israel, which he says does not
signify failure, but, rather, a focus on highly profitable customers who
need different services than those offered by other wireless operators.

It is therefore obvious that MIRS faces a serious threat from the
wireless operators entry into PTT, which was MIRS sole relative
advantage until now. MIRS was especially successful in the blue-collar
market for businesses that needed cheap, accessible, and, most of all,
reliable, walkie-talkie services. The question now is whether the
wireless operators can offer MIRS's customers sufficiently attractive
services to cause its customers to switch to Pele-Phone, Cellcom or
Partner Communications (Nasdaq: PTNR; TASE:PTNR; LSE:PCCD).

This question is still unanswerable, since it depends on the quality of
the technologies to be offered by the wireless operators. The main
difference between MIRS's service and those offered by the other
wireless operators is that their PTT services will be based on VoIP data
networks. Although these technologies are highly advanced, they are
still problematical, mainly because of the time-lag between the sender
pressing the talk button and the recipient receiving it is prolonged to
the service's great detriment. By contrast, MIRS's technology uses
Motorola wireless know-how that already ensures much better performance
than MIRS's competitors can offer.

Technology, by its nature, improves, which means that MIRS will face an
existential threat at some point. In order to block other companies from
entering PTT, MIRS asked the Ministry of Communications to charge a PTT
license fee, because it will be a wireless operator's main service,
that, by law, requires an operating license. The wireless companies
argue that PTT is an added service based on advanced data transmission
platforms, and that there is no point in blocking progress with needless
regulations.

"Globes": How will the wireless operators entry into PTT affect MIRS?

Tal: "I prefer to believe that awareness of PTT will increase. An
alternative to our service might expand the general market, which might
benefit us."

Aren't you worried by the competition, and the expected damage to MIRS?

"I've been in the wireless network business for 32 years, and I've
worked for Motorola for this entire period, including the service that
became MIRS. There's always been competition and we were always anxious.
There's never been a time of calm or tranquility. If we do our job
right, and don’t make mistakes, we'll succeed. Obviously, they'll grab
some of our customers, but when they experience the service on the other
networks, they'll demand something better and will come to us. We're not
a lazy or dormant company; we're an energetic one. We won't capitulate
easily. We'll fight with all experience."

If competition will benefit MIRS, as you claim, why do you object to the
granting licenses to the wireless operators?
"We went through trials and tribulations to obtain a cellular license,
for which we paid millions of dollars, and continue to pay every year.
If they get a license, it would be a down payment at our expense,
gratis, even though fairness dictates that our competitors should pay
$30 million for a license, like we did. Furthermore, competition might
also damage us, because although awareness [of PTT] will grow, prices
may fall, which might harm us. This damage is liable to create a
situation in which MIRS will disappear together with its technology,
which is very important for the defense forces."

Will the wireless operators entry into PTT make MIRS a target for
acquisition by one of them?

"There might be some logic for MIRS to become part of a cellular
network, but it should be remembered that MIRS has unique qualities that
must be preserved. Consolidation is the current fashion, but it's not
clear that that's the right thing to do in our case. In any event there
are no negotiations, and MIRS is not up for sale."

Published by Globes [online] - www.globes.co.il - on March 31, 2004

http://www.globes.co.il/serveen/globes/DocView.asp?did=785462&fid=1724
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