Netanyahu Sets Off Storm With Firing of Communications Ministry Chief

Bezeq shares rally in expectation that reforms will be eased, but analysts warn over impact of mixing politics and business.

Bezeq Israeli Telecommunication Corp. headquarters in Tel Aviv, Israel.
Bloomberg

Prime Minister Benjamin Netanyahu set off a storm in the Israeli telecommunications industry on Monday, a day after he abruptly fired the reformist director general of the Communications Ministry in what industry executives and analysts termed a political move to stall reforms.

Shares of Bezeq – Israel’s largest telecommunications company and the likely beneficiary of the Netanyahu move – jumped 4.5% on the Tel Aviv Stock Exchange, to end at 6.70 shekels ($1.75). Its parent company, B Communications, did even better, climbing 7.6% by closing time to 60.67 shekels, while mobile providers Partner Communications and Cellcom Israel rallied, too.

“Two days after the swearing-in ceremony of the new government, the prime minister of Israel begins his term by firing, for whatever reason, the director general of the Communications Ministry,” said Ilanit Sherf, head of research at Psagot Brokerage. “The dismissal, done quickly and decisively, raises a lot of questions about why it was done.”

Before he was informed by phone on Sunday that he was out of a job, Avi Berger – who had been the ministry’s top official for the last 18 months, after being appointed by then-minister Gilad Erdan – had been leading a wide-ranging reform of the broadband Internet sector. The reform, which entered its second stage on Sunday, requires Bezeq to let rivals piggyback on its network, creating more competition and the promise of lower prices.

In addition, the reform does away with the artificial distinction between companies proving Internet infrastructure and service, allowing users to deal with a single company rather than two. New players such as Xphone have been offering Internet packages for just 69 shekels a month, while Cellcom launched a package of Internet, landline phone and telecoms for just 149 shekels.

Moreover, Berger had been sternly enforcing his reforms, threatening to impose a monthly fine of 11.3 million shekels if Bezeq failed to abide by the terms of the broadband shake-up.

Bezeq stands to gain considerably from any delay or reversal in the reform drive. The Communications Ministry estimates the company will lose at least 1 million shekels of revenue daily from broadband reform, which has already seen it lose 30,000 subscribers to competitors.

Bezeq also stands to gain if the government eases terms allowing it to merge its independent business units, such as Bezeq International and Yes+, which could save it 1 billion shekels in costs annually.

Meanwhile, Erdan – not only Berger’s former boss but now a rival of Netanyahu’s having turned down a cabinet post in the new government – proposed legislation late Sunday that would split Bezeq into two companies: one for infrastructure, like phone services; the other for content, including its Yes satellite television service and Walla! website.

“In recent years, Bezeq has taken whatever steps it could to block or delay reforms that would lower costs to the public by tens of percent,” Erdan said. “Therefore, I’ve come to the conclusion that the way to deal with such a strong monopoly is to require Bezeq to sell its content holdings and services.”

While the stock market was cheering the promise of an about-face in key reforms, some observers warned that Netanyahu’s move and Erdan’s countermove would raise doubts about the politicization of the Israeli economy and business sphere.

“From a general economic perspective, including the capital market, we should be asking politicians not to wage their wars on the back of one of Israel’s most important companies, and in a sector that is being destroyed,” said Eran Jacoby, vice president for research at Rosario Capital. “The great majority of Bezeq’s public shareholders are foreign investors, so it’s important we don’t turn ourselves into a banana republic. Investors like these, who see the volatility in the shares because of a political struggle on the back of the company, will disappear completely.”

Industry sources said the aim of Netanyahu’s move was to win favor with Shaul Elovitch, Bezeq’s controlling shareholder, in the hope that he will use his Walla! subsidiary to launch an all-news channel supportive of the prime minster, much like the Israel Hayom freebie newspaper does.

They said Erdan’s bill calling for Bezeq to divest its content holdings is an attempt to block the prime minister’s plan. While Erdan’s bill will likely be introduced in the Knesset in coming weeks, the odds of it winning approval are slim, since Netanyahu has made clear that no legislation concerning communications and the media can be backed by coalition lawmakers without his express approval.

In a further sign of Netanyahu’s politicization of communications and the media, sources said that Shlomo Filber, a close associate of the prime minister and who ran the Likud Party election headquarters in the last campaign, is a candidate to replace Berger at the Communications Ministry.

AFP