The Bottom Line / Time to Pick Up the Phone

Talk of privatizing Bezeq has gone on for some 12 years, but the telecoms monolith is still in government hands, although it now looks like someone means business.

Eyal Gabbai, head of the Government Companies Authority, plans to sell control in Bezeq (a 30 percent stake worth around $1 billion) within the next two months. Benjamin Netanyahu, a devotee of privatization, is no less gung ho.

But all of this could have happened ages ago. The British telcoms concern Cable & Wireless offered to buy control of Bezeq in 1993, but the Israeli government couldn't bear to part with the control and the political appointments, and turned the offer down. In May 1995, the British company began buying Bezeq shares on the market. The treasury, instead of being delighted that a multinational with sales four times that of Bezeq, equity five times, and a market cap of eight times, wanted to turn Bezeq into the leading telecoms server of the Middle East, went berserk.

How could something like this happen here? Without government planning? Without the treasury setting the rules, building a system, taking international advice, flying off to New York and London to meet investment houses? This audacious attempt must be stopped immediately, wailed the treasury, and so it did.

David Brodet, then-director general of the treasury, threw everyone into stopping this "hostile takeover." He and his colleagues began slamming Cable & Wireless, attacked its chairman, Lord Young, forbade him from sitting on Bezeq's board, let the security establishment loose on him, and made his investments turn sour, such that in the end he was forced to sell in 1999 the near 20 percent stake he had bought to Gad Zeevi (who was a front man for Mikhail Chernoy). In 2002, criminal charges were laid against Zeevi and Chernoy; in the meantime, Bezeq was still in government hands.

Bezeq is a powerful telecoms firm. It is a monopoly in landline phone service, has full ownership of cellular provider Pelephone, controls multichannel TV provider Yes, and operates in the international dialing and Internet sectors through Bezeq International.

The problem is that Bezeq is a sick concern. It has 2,000-2,500 superfluous workers. Cellcom for example, has 4,500 employees and a similar turnover to that of Bezeq's landline operations (without Pelephone, Yes and Bezeq International), which employs 8,000. Bezeq also has four divisions - north, south, Tel Aviv/Sharon and center - which provide opportunities for more managers and workers, doing the same job. Cellcom has no such setup, because we are only a small country, anyway. Bezeq resembles a government ministry, not a competitive company.

Bezeq is like a clumsy, slow sumo wrestler, with a culture of nepotism and strong, polluted unions.

Bezeq's new VP of marketing, Rami Hazan, recently said that Bezeq is perceived by the public as an old, overweight monopoly. Its competitors, on the other hand, are seen as lean, mean samurai warriors, snapping at Bezeq's heels. So privatization is not an option, its an existential necessity.

The first knock that Bezeq suffered was opening the cellular market - at the time Pelephone was the only player - to competition. The second is about to happen: Hot providing a competing landline phone service over the cable network. The third is the development of technology for talking over the Internet, mostly for international calls, but also for local calls, where the price of the call is zilch.

If the treasury heads had put their egos aside in 1995 and sold Bezeq, we'd be far better off today. Bezeq would be far leaner, less cumbersome and more competitive. Let's hope that Eyal Gabbai does not miss this opportunity.