Anatomy of a Phone Farce

Despite coming in last in tender, Golan Telecom may become newest mobile operator.

Amitai Ziv
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Amitai Ziv

Michael Golan's Golan Telecom group may have placed last in the Communications Ministry's tender to become the country's newest mobile carrier, but it seems that this group might ultimately be the one that becomes Israel's fifth cell phone company. How did the tender, which was supposed to increase competition in the cellular market, turn into a farce?

First, a bit of background: On April 11, the Communications Ministry auctioned off frequencies to two would-be cellular operators. The winners were Mirs and Hezi Bezalel's Marathon Mobile, which offered to put up bank guarantees of NIS 710 million and NIS 705 million, respectively. Michael Gelfand's Cellact came in third, with a bid of NIS 695 million, and last was Golan Telecom, which offered NIS 360 million.

The people behind Golan Telecom, including Michael Golan (second from right in front).Credit: David Bachar

Mirs and Marathon were given 45 days to deliver the guarantees, which had to be from an Israeli bank. Mirs succeeded, but Marathon didn't, and as a result, Cellact received Marathon's license on May 30. It, too, was given 45 days to provide a bank guarantee. The 45 days were up Friday.

According to press reports, Gelfand had a guarantee from Goldman Sachs. But that's not entirely accurate - the international investment bank had written a letter stating that it was serving as a guarantor for the company's owners, who had written a personal check for NIS 695 million.

So what's wrong with all that, you must be asking. Isn't a check better than a guarantee?

Well, here's the next catch: The check was backdated, and Cellact admits that it doesn't currently have the money. In any case, the tender demanded a bank guarantee, not a personal check.

At this point, the tenders committee is scheduled to meet tomorrow to decide what to do. Banning any surprises, the license is likely to pass on to Golan Telecom.

Michael Golan is a French immigrant in his thirties and the former CEO of Free, a major French telecom. In Israel, he worked as an advisor to the CEO of the HOT cable company. His partner in Golan Telecom is Xavier Niel. Free is one of the world's most innovative telecoms, and it has a policy of aggressively cutting prices. Golan told TheMarker at one point that he would pursue a similar policy here.

Unlike the other two groups, Golan Telecom is likely to receive necessary guarantees. First off, its bid is half that of Marathon's and Cellact's, and second, Niel is one of the richest men in Europe, with his personal wealth estimated at 4 billion euros.

But by now it's clear - the tender was a farce. The ministry should have had groups bidding on how much they themselves could pay, not how much they could get from a bank. As a result, the groups inflated their bids and ultimately couldn't see them through. In addition, the tender committee apparently should have screened its candidates better before they entered the actual auction.

Critics also have said that 45 days is not enough to secure financing. In Israel, it usually takes as much as six months to find the money for such a large project. The decision to limit the financing to an Israeli bank - as opposed to a major international institution such as Goldman Sachs - also drew fire, given the concentrated nature of financial power in Israel. Only three Israeli banks could offer such financing - Hapoalim, Leumi and Discount - and they've all refused the first two candidates.

Furthermore, economists have questioned whether a market as small as Israel's has room for five carriers. The fifth carrier will have trouble seizing the 7% market share that the tender demands, said some.