“Don’t miss the big opportunity!” read a big newspaper ad for engineers and technicians in October 2000. The advertiser was Ofek, a company owned by Shaul Elovitch, today the telecom tycoon whose empire is teetering under a government investigation.
Ofek was a subsidiary of Eurocom, a private company controlled by the Elovitch family. It aspired to compete with Bezeq in landline telephony with lower prices and better service.
About $30 million was invested in the company, which was supposed to be based on wireless technology; at one point there was even talk of a partnership with mobile operator Cellcom that could help with financing, building a fiber-optic network and collecting bills. But the dot-com bubble burst and Cellcom dropped those ideas.
Elovitch realized he couldn’t fight Bezeq. Nine years after Ofek closed down he did the next best thing: He bought Bezeq. Since then, Elovitch has striven to stymie competition in landline telephony.
But Elovitch snapped up Bezeq for enormously more than he could afford, so he borrowed 5 billion shekels ($1.4 billion) via companies he controls. Ever since, he has been rolling over his loans and using Bezeq dividends to help reduce his debt.
One way to reduce his debt and increase his personal liquidity was an insider transaction. In March 2013, Bezeq acquired satellite TV company Yes from Elovitch. That’s the deal that wound up getting him grilled by the police this week on suspicion of fraud and other crimes.
As the Israel Security Authority puts it, since Elovitch was on both sides of the deal, there might have been a conflict of interest. Elovitch was required to deposit 5 million shekels as a guarantee and has been banned from leaving the country for six months.
"Ofek was a giant miss for Elovitch that has haunted him to this day to a degree,” says a former Eurocom executive who knows Elovitch well. “It was supposed to be a great company, but unexpected things happened. He dreamed of being a leading player in the communications market, so he chose to acquire control of a company like other tycoons.”
Seven years have passed since Elovitch bought Bezeq for 6.5 billion shekels; seven fat years for him but leaner ones for Israelis. During that time the communications market went through upheavals, but in one area it has remained stable: the limited of competition in landline telephony, Bezeq’s main source of profit.
Between 2014 and 2016, Bezeq reaped 84% of the net profit in the communications market. Its monopolistic position helped Elovitch maximize his gains from the leveraged deal.
A series of decisions by Elovitch’s good friend, Prime Minister Benjamin Netanyahu (who until recently was also communications minister), did well by Bezeq and its owner. Yet even Bezeq’s huge profits — translating into 17.5 billion shekels in Bezeq dividends over seven years — couldn’t diminish Elovitch’s leverage.
Nice guy, tough businessman
In 2010, when Elovitch joined the club of tycoons, he seemed to be a businessman of a different kind. Although he was aggressive, he also built a thriving business with his own hands and knew how to take advantage of opportunities. People who have worked with him describe him as a tough businessman but also a fair and pleasant person who wants to make money but wouldn’t stoop to crime.
He was in short a self-made man whom the industry dubbed “Mr. Nokia,” a guy who felt others were his equal, not your typical tycoon, says a market source who worked with him in recent years.
A strategic analyst who knows him disagrees. “It isn’t Bezeq, it’s the man,” he says, claiming that Elovitch didn’t get into Yes because he believed in competition in cable TV. He wanted to be the main provider of signal converters.
Elovitch, 69, is the son of Holocaust survivors who immigrated to Israel from Poland when he was 2. He grew up in Tel Aviv and married relatively young. His father-in-law had a small business installing television antennas and importing phones.
In 1968, after Elovitch’s discharge from the army, he joined the family business. In the ‘70s and ‘80s he and his brother-in-law Yigal Shagan ran his father-in-law’s store on Tel Aviv’s Gruzenberg Street. His chance came in the ‘80s when the store got the opportunity to buy Eurocom, then an importer of electronics.
His father-in-law and brother-in-law weren’t interested; in 1986 Elovitch left the family firm and, with the company Tadiran, then owned by the Histadrut labor federation, bought Eurocom. Thus Elovitch went into competition with his family over imports; ultimately he sidelined their business and that of a company named Galaxy.
Tadiran gave Elovitch ties that the family firm and Galaxy didn’t have. Then in 1992 he began working with Nokia.
Back then, Motorola ruled the market for cellphones, which were clunky but still considered luxury goods. The only company selling cellphone accounts was Bezeq-subsidiary Pelephone, Israel’s first mobile phone company, whose name means “wonder phone.” The second company to arise was Cellcom, which also started working with Motorola.
Elovitch’s great opportunity came in 1995 when a flaw was discovered in Motorola devices. He leaped and got Cellcom to buy Nokia phones (back then Israelis could only buy cellphones through the service providers). Meanwhile, Tadiran withdrew from the Eurocom partnership and was replaced by a particularly moneyed businessman, Ted Arison, who provided the financial backing to improve marketing for the Nokia phones.
Partner Communications entered the market in 1990, becoming the third cellular service provider, and Nokia sales grew even more. Until smartphones were born in 2007, Nokia ruled Israel’s cellular roost. When Arison died in 2005, his daughter Shari Arison sold a 49% Eurocom stake to Elovitch for $100 million, gaining an estimated 200% return on the investment — which shows how well Elovitch had done to team up with Nokia.
The road to the top
Elovitch spent the money he made to gradually build a telecom empire. He entered into a partnership with Yes, which began broadcasting in 2000 and was owned by Bezeq (then a government company). He also bought into other communications companies including 012 Smile, Partner, Satcom Systems and Spacecom, which owns the Amos satellites. After buying into Yes, Elovitch began to supply the signal converters it used, first as one of two suppliers and later as the only supplier. Via satellite operator Spacecom, he became a provider to Yes.
Eurocom still sells converters to Yes while owning Bezeq. The deals between the two companies are believed to have been worth over a billion shekels over the years.
Over the years, Elovitch tested various ways to become a telecom tycoon. In 1998, Eurocom bid to operate a third cellular network in Israel but lost to Hutchison China, which established Partner. He founded Ofek, which failed, and in 2008 tried to acquire Partner, but lost out to Ilan Ben-Dov. The turning point was in 2010, when the government privatized Bezeq. Elovitch bought the Apax-Saban-Arkin group’s 30%.
Then came the regulators who set rules for Bezeq to sell use of its infrastructure to competitors. “It’s like you own a building and suddenly a tenant moves in by force, at a price set by the regulator,” says a source who took part in the negotiations.
The relationship between Netanyahu and Elovitch is unclear. On the one hand, associates close to Netanyahu say it isn’t actually a friendship; at most, Elovitch is the prime minister’s acquaintance. But Netanyahu admitted to Attorney General Avichai Mendelblit that he has a personal friendship with Elovitch. In any case, his office refused to give information about meetings between the two, saying that these were private meetings.
With his success, Elovitch brought in his family. His brother Joseph has been there from day one in 1986 and now owns 20% of Eurocom. Erez, Guy and Or, his sons from Elovitch's first wife, received management positions in the group. His second wife, Iris, is also employed by Eurocom. Orna Elovitch-Peled, Or’s wife, is a director at Bezeq.
The relative brought in for questioning at the Israel Securities Authority this week with Elovitch was son Or, nicknamed Simba, who was marked years ago as his father’s potential heir. The children are much more extroverted and spend lots of time in their yacht anchored at the Galei Kinnereth Hotel in Tiberias. Son Erez is also a fixture in the gossip columns.
“This affair blew up just as Elovitch was at a crossroads, both in business and personally,” a close associate says. “He actually thought he was on a good road in terms of reducing leverage, and wanted to try new things; for example, he wanted to examine whether Bezeq could launch financial operations.
The investigation came with Elovitch at the height of his business power, but still, he was wondering what his business would look like in five or 10 years, the source says.
“The fact that not only he but his son got into trouble upsets his plans significantly," he says. "Even if they’re vindicated in the end, as they claim they will be, this process could take years, and there’s no knowing what will happen during this period.”
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