Just a day after he sealed the deal for Electra Consumer Products to buy Golan Telecom, Gil Sharon made it clear that the era of super-low cellphone rates in Israel was coming to a close, although he stopped short of saying Golan would be the first to raise prices.
His remarks gave another boost to the rally in cellphone stocks that’s been under way in anticipation of higher rates yielding higher profits for Israel’s mobile operators. But they also drew sharp criticism from antitrust officials, who accused Sharon of setting the stage for a rate hike.
“Cellular rates are extremely low,” Sharon told army radio in an interview on Wednesday. “Prices in Israel have to rise to realistic levels. It won’t be Golan that will lead the way in raising prices, certainly not, but as I’ve stressed prices are making losses for all the big companies.”
His remarks prompted a warning from an unnamed official at the Antitrust Authority, which has to approve Golan’s sale to Electra, that statements like that would be interpreted by rivals as a signal to raise their prices, knowing that Golan will follow them. “Business people should watch their words and be careful of sending messages to their competitors in the market,” he said.
Electra, a maker and importer of air conditioners as well as an electronics retailer, agreed to pay 350 million shekels ($90.8 million) for Golan Telecom. Launched in 2012, as the mobile industry was entering an era of deregulation, Golan forced veteran companies to match its low rates and simple billing strategy, which was a boon to consumers but has slashed revenues and profits.
Sharon’s remarks fortified expectations among investors that Golan would no longer pressure rates lower.
Shares of Cellcom, which gains from the Golan deal through a parallel deal for Golan to jointly own its next-generation networks, ended 9% higher at 37.77 shekels in Tel Aviv Stock Exchange trading on Wednesday. Partner Communications jumped 8.75% to 21.75 and Elco, Electra’s parent company, climbed 4.8% to 60.20.
Sharon, a former CEO of Bezeq’s Pelephone mobile unit, will act as chairman of Golan and is due to become a major shareholder in the company, as well, it was revealed on Wednesday.
Under an agreement with Electra, he will buy a 2.5% stake in Golan Telecom and will get another 3% as a gift, which together is worth close to 20 million shekels, based on what Electra paid for the company. He also got an option to increase his stake to 9.999% over the next four years, although it was not clear under what terms.
In his interviewed with army radio, Sharon said Israeli cellphone rates were the lowest in the Western world and were not sustainable.
“Even for the biggest companies in the industry, no one is really earning profits today from cellular services,” he said. “If you look at Europe, which has bigger countries, competitive prices are in the range of 20 euros [$21] in the competitive markets, so a reasonable level would be 80 to 100 shekels.”
He said the collapse of profitability means that companies were no longer developing their networks, noting that in Israel fourth-generation (4G) networks had not been fully rolled out. “Israel once was a leader in cellular-network development and now we’re far behind,” he said.
As it turns out, though, Golan itself has not been a perennial money-loser. Financial information on the company, which had not been made public when it was in private hands, showed that the company had been profitable in 2015 at least when it earned 31 million shekels in operating profit on revenues of 529 million. However, in the first quarter of 2016, the latest period for which figures were disclosed, it had a net operating loss of 6 million on revenues of 145 million.
Meanwhile, Sharon faced his first setback yesterday, with the announcement by the Krawitz chain of office supply stores that it would stop selling Golan SIM cards, which it has been doing since last May. Krawitz has reached an agreement with Pelephone to sell its cards and phones. It will launch its own K-Mobile service on Pelephone’s network.
Golan discounted the news, saying the partnership with Kravitz had been a pilot. However, Golan is now left with Best Mobile chain as its only retail distributor.