Xfone Signs Network Deal With Cellcom to Become Israel’s Sixth Cellular Carrier

Meanwhile, the Communications Ministry has vetoed Golan Telecom’s agreement to receive network services from HOT Mobile.

Cellcom shop photographed in January 2014.
Baz Ratner/Reuters

Upheaval has hit the cellular phone market: Israel’s sixth potential cellular services company, Xfone, has signed an agreement with Cellcom to build a 4G network together. Meanwhile, the Communications Ministry has nixed Golan Telecom’s agreement to receive network services from HOT Mobile, TheMarker learned Tuesday.

Cellcom announced Tuesday morning that it had signed a network partnership agreement with Xfone. This paves the way for Xfone to become Israel’s sixth cellular operator.

Xfone, owned by Hezi Bezalel, has been trying to enter the market ever since it bought the license to 4G bandwidths in the beginning of 2015. It had been in talks over potential network partnership agreements with all of Israel’s cellular companies.

At this point, Xfone hopes to be live within months. The company has promised potential customers that it will be inexpensive and transparent.

The deal was made possible because Cellcom believed it was losing its largest customer, Golan Telecom. Cellcom said Tuesday that the Xfone agreement would have no impact on its arrangements with Golan.

Under the 10-year agreement, Cellcom and Xfone will build a 4G network together, much like Partner and HOT are doing; the latter two are building their network through subsidiary PHI. Xfone will receive 2G and 3G services via hosting on Cellcom’s existing network.

Should the companies decide to part ways, the agreement ensures that Xfone will preserve its assets and will also be able to maintain service to customers.

The deal is contingent on regulatory approval from the Communications Ministry and the Antitrust Authority.

HOT surprised the stock exchange in June when it announced that it had signed a hosting agreement with Golan. Under the deal, Golan would have become a virtual network operator riding on HOT’s network. Until now, Golan has been using Cellcom’s network; under the conditions of its license, Golan is eventually supposed to build its own network.

As part of the agreement, HOT controlling shareholder Patrick Drahi extended a loan to Golan.

However, the Communications Ministry declared that the agreement was a no-go, telling HOT Mobile’s CEO that the company’s license did not permit it to host virtual operators.

This means Golan has no choice but to stay with Cellcom for the time being.

Golan, which is facing financial difficulties, has three choices: It can decide to liquidate; it can allow itself to be acquired; or it can join other Israeli cellular operators that have agreed to build a network with a partner. These partnerships include Partner and HOT Mobile, and now also Cellcom and Xfone.

Meanwhile, TheMarker learned last night that former Pelephone CEO Gil Sharon is leading a group of investors interested in buying Golan. Sharon refused to comment.

Market sources estimate that Sharon’s group is likely to offer around 300 million shekels ($77.5 million) — much less than the 1.2 billion shekels Cellcom had offered in order to buy Golan earlier this year. That deal hit a dead end when regulators blocked the purchase, arguing that such an agreement would limit competition.

Xfone has also expressed interest in buying Golan.

Xfone has operated as a long-distance service provider for years. In 2011, it received the rights to operate a cellular network. HOT Mobile, then known as Mirs, also received its license at the time.

Golan was founded in 2012, and shook up Israel’s communications market with its rock-bottom prices and easy-to-understand packages. As part of its license, Golan, which is owned by French businessmen Michael Golan and Xavier Niel, needed to share another company’s network and eventually build its own.

Meanwhile, Cellcom said Tuesday that it had started legal action against Golan Telecom after the firm dropped out of a deal they were negotiating.

On Monday, the Communications Ministry announced that communications revenues totaled 21.3 billion shekels for 2015, a 4% decrease from 2014. The decrease was mainly felt by cellular companies and by international phone service operators, it stated. The statement gave tough competition among the market’s players as the reason for the lost revenue.

Cellular revenue alone dropped 8.5% last year versus 2014, while revenue from international calls was down a “significant” 10%, it noted.

With reporting by Reuters.