Bibi as Boss Means Higher Cellular Rates

The prime minister is also communications minister and economy minister, which means he will effectively be the one who decides on whether Cellcom merges with Golan.

Sami Peretz
Sami Peretz
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Prime Minister Benjamin Netanyahu participates in a forum hosted by the Center for American Progress in Washington November 10, 2015.
Prime Minister Benjamin Netanyahu participates in a forum hosted by the Center for American Progress in Washington November 10, 2015.Credit: Reuters
Sami Peretz
Sami Peretz

In recent years, this newspaper has called for the Communications Ministry to be replaced by an indepdendent communications agency. But the politicians are too much in love with controlling the communications market. In fact, they would give their right arms before parting with the communications and media sectors.

In the meantime, however, something more serious has occurred: The most skilled politician in the country, Prime Minister Benjamin Netanyahu, arranged to also serve as communications minister, precisely at a time when there are a number of fires that need to be put out.

And its not just that he controls that one ministry. He is also srunning the Economy Ministry, which appoints the head of the Antitrust Authority, which plays an important role in the communications sector. And of course, the prime minister also controls the government as a whole.

If Israel had a full-time communications minister, he or she would have tried to do what predecessors in the job initiated but didnt complete – regulate the communications market and open it fully to competition. When he was communications minister, the current finance minister, Moshe Kahlon, made a career of it by opening the cellular market to competition. Gilad Erdan continued down the same path by opening up the Internet service provider market. But their work is not finished.

In the cellular market, weve now discovered that the most competitive player, Golan Telecom, didnt come to Israel with a long-term strategy to stay in the market and it is now seeking to merge with Cellcom Israel. Real competition has also not yet been created in Internet because the conditions that Cellcom and Partner Communications face dont permit them to wage a real fight with the Bezeq.

Thee imbalance prevailing in the cellular and land line markets requires an independent regulatory agency to address head-on these issues.

Kahlon and Erdan both built careers as serious communications minsters serving the public interest. But Communications Minister Netanyahu doesnt need to enhance his standing at the ministry. All he has to do is hold his own. There is nothing like controlling communications, and the fate of media outlets. But that is a worrying point of departure when it comes to recent developments in the communications field.

Urgent fire

The most urgent fire to contain is the Cellcom-Golan merger, under which Cellcom will pay Michael Golan and his partners 1.17 billion shekels ($300 million)and eliminate a 450 million-shekel debt.

If it is concluded, Golan Telecom will be swallowed up by Cellcom and end its historic role as an engine of competition. If it doesnt go through, that would also be good for them, because Golan in essence has thrown up its hands, no longer interested in being a real player in the Israeli cellular market.

In either case, cellphone rates will rise. But that doesnt mean that we should tnt care which of the two outcomes occurs. The merger scenario is the worse of the two. It would give Cellcom, an IDB group company, a dominant 40% market share. In another context, we have seen another IDB company, the food retailer Super-Sol, with its 40% market share, dominate the market to the point of violating antitrust laws.

If Cellcom does buy Golan Telecom, it will want to recoup its investment quickly, and only sharp rate increases will do that. Thats why this or any other merger cannot be allowed to proceed involving any of the major cellular service providers.

Granted it is only such a transaction that would permit Michael Golan to carry out an exit on nice terms, but thats his problem. The consumers problem is fear over being stuck with a market structure that will bring about constant sharp rate increases.

The price that Cellcom is offering for Golan Telecom doesnt reflect the companys market value but the potentialof removing an independent player. But even without the merger, Golan is no longer to be the platyer that drives cell rates down. The real question now is who can step into his shoes.

Such a player may or may not surface, but what is clear is that a Cellcom-Golan merger would send a signal to the market that its all right to act irrationally, because ultimately youll get approval for a merger and an exit. If thats what happens, it will encourage Hot Mobile, for example, to introduce predatory pricing to weaken Partner Communications, the No. 2 player, with an aim of weakening it so that it can be snapped up in the future.

Golan assumed several major risks when he opted for a low-price strategy, and didnt know when to stop when he violated the terms of his license. and when he agreed to the deal with Cellcom. It will require him to pay a penalty of about 150 million shekels if the transaction is cancelled (or actually 600 million, if you include his debt to Cellcom).

No matter, Israeli consumers have benefited from the risks he has taken. His departure from the market will cost us a few shekels. And, the cost will go higher the more distorted the solution to the current situation is. The Communications Ministry and the Antitrust Authority cannot approve this merger. Cellularrates have dropped due to competition rather than by a single regulatory decision.

A Cellcom-Golan merger would rescue Cellcom and Partner from collpasing profits in the face of the superpower of the Israeli communications market, Bezeq. Bezeq is reporting the highest profitability in the industry, — 984 million shekels in the first nine months of the year. It expects to show 1.7 billion in profits for the year as a whole.

Bezeqs finger

Bezeq has its finger is almost every segment of the communications market, from land line phone service to Internet, cellular and satellite television. But its power is derived from land line, which was opened to a semblance of competition at the beginning of the year as part of a reform plan that allows cellular providers to offer Internet using Bezeqs network. But by the end of the third quarter, the cellular operators had signed up 177,000 subscribers (and the figure is now approaching 220,000).

Its just that they are paying Bezeq 45 to 50 shekels for each subscriber , which they say is causing them to lose mone, or at least not turning a profit.

And one should keep in mind that the reform relates only to the Internet market and not land line, where Bezeq refuses to allow new players in. Former Communications Ministry director general Avi Berger even told TheMarker he was dismissed by Netanyahu when he attempted to inject competition into the land line sector.

Clearly the cellular operators are notr relying on Intenret for future profits; their fondest wish is to have mobile rates climb. A Cellcom-Golan merger is the answer to all their problems. They will refrain from competing in the land line telephone market, leaving it to Bezeq, which could lead to high pricing for Internet infrastructure.

Bezeq says it has been collecting more from its Internet subscribers by upgrading connection speeds, but the moment that the cellula companies abandon the market, rates will skyrocket.

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