Telecom Merger at Center of Netanyahu's Corruption Case Okayed After Snap Review

Hasty approval by Cable and Satellite Council in 2015 deal over Bezeq and Yes had been made possible with an expert report by a consulting firm with no expertise in telecommunications or media

File photo: Prime Minister Benjamin Netanyahu attends the weekly cabinet meeting at prime minister's office in Jerusalem, January 27, 2019.
Abir Sultan/AFP

A 2015 merger between Bezeq, Israel’s dominant telecommunications company, and satellite TV company Yes, which is a key part of one of Prime Minister Benjamin Netnayhu's corruption cases, was approved by the Cable and Satellite Council in a snap process and without any conditions.

The merger was critical for Shaul Elovitch, the tycoon who controlled Bezeq at the time and was under pressure to repay debt. Bezeq’s shareholders had approved buying his stake in the joint satellite television venture Yes – a move that would yield him hundreds of millions of shekels – but only if regulators agreed to place no extra conditions on the merger and if the deal could be wound up in 90 days.

The final obstacle to the merger was the Cable and Satellite Council, but before it could give its approval it needed an expert opinion on the impact the merger would have.

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The council, in fact, approved the merger very quickly – and that was thanks to an expert report that was written in just three business days by a consulting firm with no expertise in telecommunications or media.

The report, by the firm Adalya, was discussed in a single meeting by the council before it approved the merger unanimously on June 23, 2015. Netanyahu, who was serving also serving as communications minister, signed off on the merger the same day.

The fast-track procedure is a key part of the police’s Case 4000 investigation, which alleges that Netanyahu traded regulatory favors for Bezeq in exchange for favorable news coverage of the prime minister and his wife Sara by its Walla website.

The case is one of three that Attorney General Avichai Mendelblit will be deciding whether to prosecute – a decision that could decide Netanyahu’s fate in the April general elections.

Last February TheMarker revealed the minutes of the council’s meeting, which documented a confused and hasty discussion taken under what its chairwoman, Yifat Ben-Hai Segev, admitted was unspecified, outside pressure.

But in spite of freedom of information requests by TheMarker, the Communications Ministry and Cable and Satellite Council refused to release details about the Adalya report that was central to the council’s decision.

File photo: Shaul Elovitch at the Tel Aviv Magistrate's Court, February 2018.
Ofer Vaknin

The report was finally leaked to the Davar Rishon website last week, prompting shock on the part of industry figures.

“It was a shallow and negligent opinion, which shows how quickly its writers were working. The council behaved irresponsibly and unprofessionally when it agreed to approve a major merger like this without having sufficient factual basis,” said one industry figure, who asked not to be identified.

Adalya said in response that the leaked report was part of a campaign to undermine its credibility and that the document’s central conclusion about the impact on multichannel television have since proven true. It said four employees working in parallel over five days and 130 hours.

Netanyahu’s spokesman echoed that. “This is yet another story aimed at continuing to exert tremendous pressure on the attorney general to file an indictment at all cost,” he said. “In recent weeks, documents have been revealed that destroy Case 4000 and support the version that the Bezeq-Yes merge was properly approved in a documented and orderly process.”

A spokesman for Elovitch, who has since lost control of Bezeq and is also under investigation, said the approvals for the merger were done properly and transparently. The minutes of Cable and Satellite Council prove that the communications minister’s approval was duly given. The attempt to look for defects [afterwards] is transparent and forced,” he said.

The background to the council’s decision and the study it commissioned was Bezeq’s plan to buy the 50.2% of Yes controlled by Elovitch’s holding company Eurocom. Bezeq would pay 680 million shekels ($185 million at current exchange rates) in cash plus as much as 370 million more for tax loss credits and 170 million in future milestone payments.

But the merger, which had first been proposed in 2014, was meeting with resistance from regulators.

The Antitrust Authority approved the deal that year but set conditions. A skeptical Communications Ministry, officials led by Director General Avi Berger, wanted to add its own, in particular that Bezeq would open up its core landline telephony and internet businesses to more competition.

Bezeq officials estimated over the course of 2014 that there was just a 50-50 chance of the merger being approved under terms Bezeq’s board could live with. By March 2015, when Bezeq shareholders approved the deal with a 90-days deadline, the prospects looked grim.

But the regulatory landscape suddenly changed after the 2015 elections and a new government led by Netanyahu formed in May. In his second role as communications minister, Netanyahu fired Berger and replaced him with a political ally, Shlomo Filber (who has now turned state’s evidence against the prime minister) three weeks later.

The Cable and Satellite Council met June 18 and decided without a formal tender to award the work of preparing a study of the impact’s merger to Adalya, which completed it June 23 – or three business days.

The report’s writers interviewed executives at Bezeq and Yes but did not talk to the companies’ competitors. Nor did they speak with finance and communications ministry officials involved in the process. The report itself did not name the authors.

The report’s content only addressed the issue of multichannel television even though the merger would have wider implications. “The deal isn’t expected to have a significant effect on multichannel television or consumers, therefore we so no reason not to approve,” the report concluded, proposing no conditions for the council to place on it and providing explanations for its conclusions.