PM's Adviser Assails Golan-Cellcom Tie-up

Eyal Winter, a university economist consulting for the government, tells TheMarker that Golan Telecom’s collapse would not be catastrophic if the state rejects the merger.

Moti Kimche

Eyal Winter, the Hebrew University economist who has been retained by the government to examine the proposed merger between Cellcom Israel and Golan Telecom, told TheMarker he does not support the the tie-up.

“This merger is bad for the market from the point of view of price and the quality of service, compared to other scenarios,” said Winter, who spoke to TheMarker a week before he is due to publish his findings. “The other reason is that it sends the wrong message to Israeli business culture.”

Winter’s remarks come amid a public campaign by Golan and its controlling shareholder, Michael Golan, warning that refusal by the government to approve the 1.17 billion-shekel ($310 million) takeover of Golan by Cellcom would lead to Golan’s collapse and create havoc in Israel’s mobile market by leaving subscribers stranded.

But Winter, who has been retained by the Communications Ministry and Prime Minister’s Office, discounted the threat and echoed officials’ views that the other companies in the industry were preparing to absorb Golan’s 900,000 subscribers.

“Golan’s collapse isn’t preferred scenario for the cellular market but in a situation like this, taking 900,000 customers and telling them ‘Go, move, you have no choice’ ... will create tremendous movement within the market, and movement like this can only be good,” he said.

The merger, announced in October, has met with near wall-to-wall opposition from officials, including a preliminary opinion from Antitrust Commissioner Michal Halperin. The tie-up would put Golan — an upstart company that has forced down the cost of cellphone plans since major reforms were introduced in the market four years ago — together with Cellcom, the biggest of the three veteran companies that once had the entire market to themselves.

Brittle relations between Golan and regulators became even more fragile several days ago, after Michael Golan told Communications Ministry Director General Shlomo Filber that he would not give the government the codes for the SIM cards of its subscribers’ mobile devices.

“That would be like the condemned prisoner handing the hangman his rope,” Golan reportedly told Filber.

Access to SIM codes would enable Cellcom to continue providing service if Golan fails, because Cellcom provides the network infrastructure for Golan. The company could continue providing service until subscribers chose a new provider.

But Deputy Attorney General for Economic-Fiscal Law Avi Licht told Filber that even though cellular service is considered critical infrastructure, the government had few legal means of forcing Golan to turn over the codes. As a result, Licht may recommend changing the rules.

The storm over the upcoming cabinet vote on the merger lifted the share prices of mobile operators in an otherwise down day for the Tel Aviv Stock Exchange yesterday. Cellcom jumped 3.5% to 28.97 shekels and rival Partner Communications gained 2.6% to 18.27.

Winter, who is Silverzweig professor of economics and author of the book “Feeling Smart: Why Our Emotions Are More Rational Than We Think,” said Golan’s warnings about its imminent demise are a political tactic. He said Israel should learn from the European Union’s experience with such mergers.

“The consultancies hired by [Golan and Cellcom] are trying to create the impression that we’re in an era of industry consolidation, but [EU Chief Competition Economist Massimo Motta], who knows the history of mergers in the industry better than anyone, says that there is no ‘era of consolidation’ and that the mergers we’re seeing can be explained more in terms of political economics,” Winter said.

He said mergers by EU mobile carriers did not lead them to spend more money on infrastructure. He added that Israel would probably not experience the moderate rise in the cost of cellphone service that the EU market did. The consolidation of markets to four players from five in the EU generally involved mergers between smaller rivals. In Israel, by contrast, Cellcom is already the market leader, Winter noted.