Cellcom Signals That Sale of Golan Telecom Is Near

Company says it is in network-sharing talks with one of two buyers for Golan.

Michael Golan at the Golan Telecom headquarters in Tel Aviv, June 9, 2013.
Eyal Toueg

The sale of Golan Telecom appeared to be moving close to completion on Wednesday after Cellcom Israel said it was in talks with two potential buyers of the upstart cellular company over a network-sharing agreement.

Cellcom, the country’s largest mobile phone operator, identified one of the two groups it was talking to as Marathon 018 Xfone, a provider of Internet and international-calling services that has plans to enter the mobile arena, too. Cellcom didn’t name the second buyer but it is known to be an investor group led by Gil Sharon, the former CEO of No. 3 mobile company Pelephone.

News of the talks not only signaled that the Golan sale looked to be imminent but that Celcom would be gaining an important new revenue source. The company estimated that the network sharing and hosting agreement could be 2.2 billion shekels ($582 million) over 10 years, averaging 220 million to 250 million shekels annually with which every group ends up buying Golan.

The revenue would include repayment of the 600 million shekels Golan owes Cellcom. Shares of Cellcom rose 3.8% in Tel Aviv Stock Exchange trading to finish at 29.48. Its No. 2 rival, Partner Communications, also gained, finishing up 2% at 18.

The company declined to say whether the impending deal was behind an announcement two days ago that it was canceling plans for a 400 million-shekel bond issue

Cell division

The news comes as the mobile industry struggles to recover from the trauma of the 2012 government-imposed reform of the industry, which broke the three-way monopoly of Cellcom, Partner and Pelephone and allowed new entrants like Golan Telecom into the market, causing rates to plummet and profits to shrink.

Although Golan was hailed by concerns for forcing rivals to lower their charges, the company – founded and controlled by the French entrepreneur Michael Golan – failed to make a profit and has been on the block for more than a year.

It tried to sell itself to Cellcom for 1.7 billion shekels a year ago, but antitrust regulators blocked it, saying it would stifle competition. Whoever ends up buying Golan Telecom now will likely pay only a fraction of that – perhaps 300 million shekels. Cellcom was to pay a premium for the company to remove a competitor from an overcrowded market, but Golan has no network of its own; its main asset is its 800,000 subscribers.

On paper, Xfone appears to be the stronger of the two buyers because it brings with it between 100,000 and 200,000 subscribers of its own. But the company will have to return its cellular frequency, which it bought at a discounted price of 17 million from the government without getting the money back in return, plus pay another 17 million for the discount it received.

Moreover, it’s not clear that Hezi Bezalel, who controls Xfone, has the financial resources to complete the Golan acquisition.

In any case, from the consumer’s point of view either buyer will be good for consumers because they will keep Golan Telecom as an independent player and prevent a consolidation of the industry. If Xfone is the buyer there will be five players, and if the Sharon group wins, there will be six.