Talking Stock / See Dick Run Bezeq

The battle over its coming financial statement is raging. Leaks from the Bezeq and Pele-Phone management boards whisper that the phone company and its subsidiaries will be posting massive charges and write-offs amounting to hundreds of millions, wiping out their profits again.

Write-offs? Charges? Why? We aren't in 2001, the year in which chastened phone companies had to write off massive investment in equipment and frequencies made during the bubble era. We aren't in 2002, either, the year in which the carriers shed investments in startups whose technologies disappointed.

No, the financial statement over which the brouhaha is boiling is for 2003, the year of the great telecommunications comeback, the year in which most companies clawed their way back to profitability, the year in which respectability returned to cellular and Internet.

That is in the world outside Israel, at least. Thing is, our Bezeq has cycles uniquely its own. Its write-offs and charges have nothing to do with the booms and busts of the international telecoms space. No, its seasons are dictated by changes at the top.

New broom, old habits

Bezeq has a new CEO. His name is Amnon Dick. And like all new brooms, Dick wants to sweep out the rubbish and post as many charges as he possibly can, so when he wraps up his career at the company, his achievements will seem all the brighter.

Bezeq is not unique in recording huge charges upon a change at the helm. Incumbent managers will do anything to avoid charges that make their results look bad. New managers love mechanisms that tarnish the results of predecessors, making their achievements look all the greater in comparison.

But no publicly traded company in Israel approaches the dimensions of one-time charges Bezeq is recording, because Bezeq has an asset (or liability) that doesn't even appear in its balance sheet, but that forces it to set aside massive provisions every now and then.

That asset/liability is its workers, of course. Some of the massive charge Bezeq will apparently be recording in the fourth quarter has to do with Dick's efficiency program. He wants to get rid of a few hundred workers.

But why post a financial provision? Because that's what Bezeq traditionally does. To rid itself of superfluous workers, it pays them through the nose, giving them far more in compensation than it set aside in their severance funds.

Fare thee well

Perusal of the company's financial statements for the last seven years shows something astonishing. Every two or three years the company announces an "efficiency" plan, by which it means it's firing hundreds of people and posting enormous charges. This "efficiency" has cost billions over the years.

The first one to post elephantine charges was Ami Erel, who led Bezeq from 1997 to 1999. He let 2,050 people go, giving each NIS 700,000 beyond their regular compensation. He then declared victory and left Bezeq for the charms of the IDB group, where they like top executives hailing from the public sector.

Erel was succeeded by Ilan Biran, who headed Bezeq from 2000 to 2003. He, too, wondrous as it is to relate, deemed the firm to be inefficient and dismissed 1,770 people. It was easy enough to do, as the company was liquid: All he had to do was cut an NIS 1.4 billion check, and record charges. Efficiency! At which point Biran declared victory: He had streamlined the cumbersome phone company. He then moved on, taking the chair at the Yes satellite TV company.

Now it's Dick's turn. And what did he find when he assumed the scepter? An inefficient company, of course, which had to fire hundreds of people. The solution? To hash out a plan for layoffs with the labor committee, at a cost of several hundred million shekels. Know ye that Bezeq has traditions, Bezeq has standards and, mainly, Bezeq has the wherewithal. Sometimes it pays from its cash flow deriving from its monopolistic operations, and sometimes from the treasury, through offerings whose proceeds flow straight to the workers.

Privatization above all

But why "must" the workers be given tremendous severance compensation amounting to billions? Because of their political clout? No, no, no, the official explanation is the need to buy the workers' acquiescence to the company's privatization. Without efficiency measures and an agreement with the workers, the company can't be privatized. And privatization, as the government keeps hammering home, supersedes all.

But the process of privatizing Bezeq has lasted for 12 years now. Communications ministers, the directors of the Government Companies Authority, and the leaders at Bezeq itself have changed time and again.

The only thing that hasn't changed is Bezeq's labor committee. Every few years it manages to "sell" its "acquiescence to privatization" to the government and the Bezeq board for a few hundreds of millions more.

Will Dick's current agreement with the workers end the story? Of course not. When privatization really does loom large, the workers will demand a fat package of options at our expense, because that's how things are done.

This unbelievable story has accounting ramifications, of course. Namely, Bezeq's financial statements aren't exactly reliable, because every few years the management posts a massive "nonrecurring" charge. But when that "one-time" item becomes an essentially fixed one, it means the company's "regular" P&L statement does not faithfully reflect a thing.

Maybe what Bezeq should do is take a page from the banks' books. Every quarter, the banks post a provision for problem debts. Maybe the phone company should post a quarterly fixed amount for extortion by its workers, based on its experience in the last 10 years. Maybe then we will know once and for all just what Bezeq's workers cost, and how profitable the company really is.