Golan Telecom Gaining Users, but Still Losing Money

As cellular provider grows in stature, rumors abound of future merger with Cellcom.

Slowly but surely Golan Telecom is evolving from a price leader to a value provider. For NIS 99 a month it is already offering customers not only phone and Internet service, and not just overseas calling too, but a virtual overseas phone number and virtual lines in Israel — the only operator providing all this for the same price. The earlier complaints over poor reception and disconnects are also dwindling and the company now provides improved response at its call centers.

But there are increasing signs that Golan Telecom is fed up with losing money. Its expense for piggybacking on the Cellcom network is growing. Meanwhile, according to Cellcom and Pelephone which have already released their reports, subscriber migration from large to small companies has slowed significantly, and this poses a problem: If Golan and HOT Mobile are losing money and at the same time are barely growing, their problem is long-term and something needs to change.

Voices in the industry say changes will indeed shortly occur. Around the world, this is an age of retrenchment and mergers which will perhaps reach Israel too. The most likely scenario is for Golan Telecom to either acquire another cellular network — virtual or otherwise — or being sold to another network.

There may have been something to the rumors spreading several weeks ago that Golan Telecom partner Xavier Niel is interested in acquiring Cellcom. Representatives from the Lazard investment bank apparently met with Niel and asked if they're interested in buying Cellcom. When Lazard tried to interest the debt-laden IDB group in a deal it was told: "The company isn't for sale."

But Cellcom is, essentially, up for sale just like all the companies of the group — for the right price. A deal won't be easy to close: Cellcom is leveraged over its head and a buyer would have a hard time piling on more debt, as IDB has since buying the company in 2005.

But Niel and Michael Golan aren't mere financial buyers like IDB's Nochi Dankner was. If they buy Cellcom and merge it with Golan Telecom they would ensure that competition would ease up, and the merged company could accordingly improve its profits. Buying Cellcom could be the solution for Golan's dilemma of building a network, a tough and expensive undertaking.

Eyal Toueg