The cellular telephone market, which has seen fierce competition and low prices in recent years, is now facing the prospect that Golan Telecom might seek to merge with a competitor.
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Government officials who considered the prospect on Monday concluded that the government should oppose such a merger because it is liable to curb competition.
The meeting of officials from the finance and communications ministries came after Golan retained investment banks to explore a sale of the company to a competitor. “A Golan merger is not good for the market. The most realistic scenario would be [a merger] with Cellcom, the biggest company in the market, and together they would have a market share of 40%,” a senior government staffer said on Monday.
Communications Ministry director general Shlomo Filber, who attended the meeting, decided to inform Golan that the government would object to a merger.
Golan, which was founded by French-Israeli entrepreneur Michael Golan, played a key role in driving down cellular service rates in Israel when it entered the local market in 2012. Before the market was liberalized, it was dominated by Cellcom Israel, Partner Communications and Bezeq’s Pelephone brand.
Apparently, the news has already been conveyed to the company, although the deliberations are theoretical until Golan actually seals a merger agreement for the government’s review. The law requires the Communications Ministry and Antitrust Commission to approve a merger, but the Finance Ministry’s consent is not required.
Despite the stance Filber took at Monday’s meeting, he gave an interview the same day to the Bloomberg news service in which he voiced support for consolidation in the industry. “The market has lost its correct balance regarding price,” Bloomberg quoted him as saying, adding that low profits put “the ability of companies to keep up with technology and maintain and develop infrastructures” at risk.
“I don’t see a problem with Cellcom, Partner or Bezeq buying Golan if they want,” Filber told Bloomberg. “The market will continue to be competitive even with four main players and other niche players, with rational prices that will enable reasonable profitability and infrastructure investment.” Israeli cellular companies “are selling a monthly line for around 35 shekels ($9). This is a price that is not economical,” Filber said. “OECD prices are around 20 euros (86 shekels),” referring to the umbrella organization of the world’s developed countries, including Israel.
It should be noted, however, that the Israeli cellular rates to which Filber was referring are introductory rates, while the average monthly rate paid by Israeli consumers is 65 to 70 shekels, the major domestic service providers have reported.
For their part, the Finance Ministry and Antitrust Authority want to make it clear to Golan that a merger with a competitor is not an option. That would force Golan to enter into an agreement through which it would share a transmission network with Cellcom, thereby preserving Golan as a separate player in the market.
“There clearly are people who would prefer to have Golan disappear,” the government staffer said, “but it would be better for competition to have it remain in the market.” The staffer added: “In such a scenario, Golan will have to invest in building the joint network, and prices in the market will be going up a little anyway, something that the Communications Ministry would like to happen, to further the companies’ stability.”
Concerns regarding Golan Telecom surfaced at the beginning of the year, when it was learned that rather than building new cellular transmission sites, it was dismantling facilities. Its license provisions require the company to have coverage of 40% of the country via its own independent network by January, but instead it began reducing coverage. If it is found to be in violation of the terms of its license in January, Golan could find itself not only facing fines but even a revocation of its operating license.