Sex, Guns and Big Bucks

The Communications Ministry is about to announce which contenders qualify for the next stage of the race to set up another mobile operator. A check into their backgrounds uncovered some colorful details.

Amitai Ziv
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Amitai Ziv

The cellular-frequency tender is entering its last phase. By week's end the Communications Ministry will tell the four contenders which are qualified to enter the next phase; that is, which met the threshold conditions, including a minimum amount of capital and experience. Barring delays, on April 11, two groups will be granted the right to invest a billion shekels apiece to set up new cell-phone companies.

Even though the final decision is imminent, little is known about some of the contenders. It seems there are some skeletons in the closet, and all are a good deal more colorful than our current cellular companies' controlling shareholders. The following are examples of their more intriguing holdings.

Credit: Moti Milrod

African arms deals

One interesting group is businessman Hezi Bezalel's Xfone 018 Communications, registered for the tender under the name MobileX. Bezalel made his fortune in Africa, including through arms dealing. Bezalel represented Israeli defense companies in various African countries and reaped profits from the fees he charged.

His associates say he worked only with governments, not with rebel groups. Now he wants to make himself into a legitimate businessman in Israel. He bought Xfone in March 2010.

A month ago, TheMarker revealed that Bezalel's financial backers include two international communications giants, China's ZTE and India's Tata, and each could own up to 20% of Bezalel's future cellular company.

"Communications is going to be the main thing," said Gilad Bar-Lev, CEO of Bezalel's investment arm, during an interview last October. "Communications is a craft, and our group has the knowledge."

At the time, Bar-Lev rattled off a list of communications companies controlled by Bezalel, but some of them turned out to be insignificant or inactive.

One such company is Fusion Mobile. Bar-Lev had described the company as a British cellular content provider. On its website, it says it works with 120 cellular operators in 60 countries and 1.5 billion customers, and that it has been around since 1988. Yet the British companies registrar states that Fusion Mobile has been around only since April 2010, and its office happens to be at Bezalel's private address. It's not clear what content it provides, and it doesn't say which companies it works with, as is standard. Xfone says the company employs 15 people.

Credit: Getty Images

Another firm is X-Mobility, which Bar-Lev presented as a mobile virtual network aggregator, which provides airtime for virtual cellular operators (MVNOs ). The company's website doesn't list a single client. While X-Mobility was presented as part of Bezalel's group's operations, in practice Bezalel holds only 5% of it.

And then there's Jetstream Data, which was presented as a company that works in "setting up optical communications infrastructure." According to its website, partners include Alvarion, Cisco, ECI Telecom, Comverse and the banks UBS and HSBC. It also states that the company has 30 years of experience and worldwide reach.

Yet Jetstream's website doesn't list a single customer, and the company was registered in April 2010 with 100 shares. Bezalel has 80 of them, and the rest are held by Randhir Kalsi, an Indian citizen who lives in Dubai. Kalsi is registered as a board member of a firm called Marathon Corporation, one of the competitors in Israel's cellular frequency tender. The address of that company, too, is Bezalel's private residence in London. Xfone says the company employs 10 people, including managers and marketing staff.

Bar-Lev also said that Bezalel was partnered with the communications company Millicom International Cellular, which owns the cellular brand Tigo, in several companies. In fact, Bezalel holds only 12% of Tigo in Rwanda.

Millicom's fourth-quarter 2010 report shows that Tigo's revenues in Rwanda were $4.3 million and that it has 550,000 customers. No comment was available from Bezalel by press time.

Golan Telecom - sex shops and serial angel

Credit: Eli Magal

The Golan Telecom group is one of the more colorful and fascinating of the companies competing in the tender. The majority shareholder is Michael Golan, formerly known as Michael Bukovza, a recent immigrant in his early 30s. Golan has already served as a board member and assistant to the chief executive at HOT, a company in the French businessman Patrick Drahi's group. He left HOT to take part in the tender.

No less interesting than Michael Golan is minority shareholder Xavier Niel, who holds 30% of the group's shares.

A recent article in the Financial Times on groundbreaking companies included Niel's company Free Telecom, based in France. Free was one of the first companies in the world to offer consumers a package deal including phone service, Internet and multichannel television, and to come up with innovative pricing models for related technological products.

On the less glamorous side, the Financial Times reported that Niel owned a chain of sex stores in France in the early 2000s, and a brothel was uncovered behind one of the stores.

Niel was detained for a month in 2004 and stood trial in 2006. He was cleared of prostitution-related charges, but convicted of inappropriate use of corporate funds, which is not a criminal offense. He was sentenced to two years of probation and fined 250,000 euros.

Niel's history in the sex industry goes back even further. At the start of his career he operated Minitel - a sort of early version of Internet service in France, using primitive computers. Among the services he ran was the "pink sheets," not the Nasdaq exchange but a chat service for adults only.

In a letter to TheMarker, Niel says he regrets that period, and looking back, is ashamed of them.

That unfortunate mistake led him to devote his life and career to introducing change into the French telecom market, for the greater good of the clients, he explains.

Credit: Reuters

Free-Iliad, in which he owns more than 60%, serves more than 5 million customers in France, who enjoy high-speed Internet, telephony services at a fixed price and access to more than 400 television channels, he says - all for 30 euros a month. That price hasn't changed in a decade and caused even the giants among Free's competitors to lower their prices by 40%.

He recently won a French government tender to operate a fourth mobile network, which he expects to launch in 2012, he says.

Niel also owns holdings in Le Monde, a real estate company and a big bunch of startups in France and elsewhere - including seven Israeli companies. He invests in two to three new companies each week, making him the most active angel investor in the world. Now, says Niel, he aims to harness his expertise and experience in building mobile operators to create a new Israeli mobile company that supplies quality service to Israeli clients at especially attractive prices, as they deserve.

MIRS - piles of debt

Patrick Drahi's MIRS is also contending in the frequencies tender. A top source at the company calls the tender a "make or break" for the company: MIRS must win a frequency and move to GSM technology in order to survive.

Very little is known about Drahi's businesses. All his companies, other than HOT, are privately held. For tax reasons, his holding company Altice is registered in Luxembourg.

You could however call Drahi Patrick the cable guy. He owns cable television companies in France, Belgium, Luxembourg, Switzerland, the Antilles and Israel. On the upside, a presentation for Tel Aviv investors a few months ago revealed that his firms maintain EBITDA greater than 50% of turnover. On the downside, the presentation revealed that Altice is highly leveraged.

From 2002, the year of its establishment in its current format, Altice has borrowed more than 10 billion euros. New figures in the French press indicate that three of Drahi's companies (in France, Belgium and Luxembourg ) had combined revenues of 650 million euros in 2010. Altice's current debt, according to reports, is 2.8 billion euros.

Under Israeli banking regulations governing lending to "single borrowers" (which can mean a business group ), Drahi's debt to the banks may not exceed six times EBITDA, and he's very near that ratio. To improve the structure of his debt, Drahi decided on two steps. One is to stop marketing. Two is to sell his cable companies in Belgium and Luxembourg.

Drahi's cable company also had a problem with its reputation for service. Specifically, it had a bad reputation. In 2007 the company operating in France stumbled into a service crisis: Customers were having difficulty receiving television signals and their phone service was intermittent. The sour cherry on the cake was mistakes in bills sent to 60,000 customers - who couldn't get the company on the phone to complain. The upshot was a protest in the Place de la Republique, near the company's offices. Dozens of people would gather every day and protest about service.

Cellact - the doctor with the private jet

Since the frequencies tender was announced, plenty of people in the Israeli telecom scene have been wondering who Michael Gelfand, head of the Cellact group, is.

Gelfand is the most mysterious of the contenders. His main address is in Palm Beach, Florida. First and foremost, he's a medical doctor, from Georgetown University, specializing in transplants and infectious diseases, and nephrology. His work on immunization is considered groundbreaking. One of his studies led to the development of a treatment for lupus. In the past he owned two active clinics, in Washington and Florida, and has been lecturing at Georgetown University's medical school since 1974. In the 1980s he set up a nonprofit clinic for dialysis treatment in Tel Aviv.

Gelfand does his business through Spotlight Media Corporation, founded in 1998, which owns nine telecom companies. The biggest is Buffalo Lake Erie Wireless. That's the parent company of Blue Wireless, which provides cellular services in the New York State area. Gelfand also owns a Canadian mobile company, Blue Canada Wireless, which bought frequencies in 2009 but isn't operative yet. His brother Brian owns 39% of that venture.

Gelfand also owns real estate businesses, including a building in Palm Beach. The company Lady Edith Hawker Flight is also registered in his name. It owns a two-engine private jet with capacity for 10 passengers.

He is also involved in nonprofit activity. In the early 1990s Gelfand set up the Edith and Michael Gelfand Foundation, managed by his wife Edith. It supports education, healthcare and Jewish organizations, including synagogues and Chabad houses. In 2009 it gave away $70,000.

Mia Epstein contributed reporting.

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