Golan Telecom Must 'Double Its Rates' to Be Profitable

But Barclays report says rises won’t begin until 2018 due to market pressures.

Golan Telecom's CEO Michael Golan at the company's offices in Tel Aviv.
Eyal Toueg

Golan Telecom will need to double its cellular rates if it ever expects to achieve profitability, according to a comprehensive report on the Israeli telecoms industry issued over the weekend by Barclays.

Tavy Rosner’s report comes three weeks after the Elco Group agreed to buy Golan – the upstart mobile provider that led Israeli rates sharply lower after it entered the market almost five years ago – for 350 million shekels ($91.8 million).

“Golan’s aggressive pricing dragged down the industry’s revenues and margins, and the recent takeover announcement by Elco raised hopes for a market repair. Our analysis shows that, in order to be profitable, Elco will need to double Golan’s current prices,” Rosner said, adding, “However, this might prove challenging.”

Elco will have to move slowly on rate rises because in the transition period before the deal to buy Golan is completed, rivals are luring away subscribers with low-priced offers – such as Hot Telecom’s for unlimited service at 30 shekels a month. Since the offers typically involve a 12-month guarantee by the providers, Golan will be unlikely to act on rate rises before 2018.

In all events, Rosner said cellphone rate rises would be limited as long as there were five players in the market. Among telco stocks, the only one he rated was Bezeq.