The planned Cellcom-Golan Telecom merger passed its biggest hurdle on Wednesday, when the Israel Competition Authority granted Cellcom permission to buy out its competitor, no strings attached.
Competition Authority officials believe that the country’s cellular market will remain competitive even after a merger, and that Cellcom cannot afford to raise prices because it would immediately lose customers.
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Cellcom’s share price increased 2.4% on Wednesday.
The trustbuster granted its approval after receiving an opinion from the Finance Ministry’s budgets department at the beginning of the week calling to allow the merger to go forward.
Now the only thing blocking the merger is approval from Israel’s Communications Ministry, which is expected to give it the green light as well.
The deal calls for Cellcom to pay Golan 590 million shekels in cash and forgive 130 million shekels in debt. The sum may grow, as Cellcom is obliged to pay Golan 8 million shekels a month until the deal is completed at the end of 2020.
Competition Authority officials said they decided to approve the merger after examining the market and determining that “the cellular market is one of the most competitive in Israel.”
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Israel currently has six cellular operators and three cellular networks, and another five virtual cellular providers that offer various kinds of voice and internet packages.
The barriers preventing customers from switching carriers are low, added antitrust officials. Some 2 million customers switch carriers every year.
In early 2016, the Competition Authority, then called the Antitrust Authority, opposed the merger, taking it off the table, even though some 1.6 million customers a year changed companies at that time as well. The Antitrust Authority expressed concern at the time that a merger could take Israel’s cellular market back to the time when it was controlled by three major companies.
Both the budgets department and the Competition Authority justify the approval by citing one company: Xfone, which entered the market in 2018 offering We4G service, sparking significant competition. “The entrance of a new competitor solidifying competition in the market, the reduction in revenue per cellular customer, the increase in the number of transfers between cellular provider and the strengthening of virtual carriers indicate competition is strong and led to approving the merger this time,” it stated.
The regulator didn’t entirely dismiss the chance that prices could increase after the merger, but instead stated that officials believed the market would remain competitive.
The average revenue per cellular customer in Israel is only 34.80 shekels a month, up from 47.30 shekels a month in 2016, according to an economic analysis the trustbuster conducted. This indicates cellular prices have decreased over the years.
Relying on Xfone alone to maintain competition is problematic because the company is currently running operating losses on its We4G operations, which the Xfone itself is subsidizing.
The merger may wind up costing Xfone tens of millions of shekels more to unroll a fifth generation cellular network. Currently, Cellphone, Golan and Xfone share the same cellular network, and each one is investing equally in the 5G infrastructure. If the investment is instead divided equally between two players, Xfone will have to spend 225 million shekels on its share instead of the current 150 million shekels.
However, the Competition Authority does not fear that the merger will damage Xfone’s competitiveness or business capacity.
Competition Authority Director General Michal Halperin stated, “The fact that in 2020 we can approve a merger between two cellular companies that was rejected in 2016 is the result of positive changes in the industry and the entrenchment of competitive behavior within it. The market structure and reforms by the Communications Ministry advancing competition created a competitive market for Israeli consumers with a range of products at prices for every pocket.”