Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) has completed its takeover of the Unlimited fiber-optic venture, which is using the infrastructure of Israel Electric Corporation (IEC) (TASE: ELEC.B22), as reported last week by "Globes." Cellcom is buying a 70% share in the venture from the venture's shareholder, with IEC, a partner in Unlimited from the beginning, owning the other 30%. The deal went through after the Ministry of Communications and the government approved a reduction Unlimited's deployment obligation from universal deployment to 40% of households.
The deal puts new life into the venture on which great hopes of it becoming Israel's third communications network were pinned. Without the deal, the venture probably would have been discontinued, but there is now hope that deployment of fiber optics in Israel will generate healthy competition.
The big question is what partners Cellcom will recruit for Unlimited and how it is planning to raise money. The cost is very heavy for Cellcom, which has already announced its intention of raising capital from additional investors - either investment institutions or additional partners, such as Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR), which said that if the venture was economically worthwhile, it would consider joining it.
Many changes are expected in Unlimited following Cellcom's acquisition. The venture will stop operating on the existing model in which customers buy the infrastructure from Unlimited and independently select their Internet provider. This model was one of Unlimited's big failures; it prevented the provision of complete communications services on the infrastructure.
Secondly, Cisco Systems will no longer be the sole supplier for the venture and is technology is likely to change, mainly in the engineering solution for network access (a switch from P2P to GPON).
It was also announced that Cellcom had managed to obtain very attractive prices from IEC, which is cutting the formerly very high costs for carrying out the work. Cellcom will invest NIS 100 million for 70% of Unlimited, money that will be divided among the shareholders in the venture and its suppliers. Cellcom will get a company with no debt.
IEC chairperson Yiftah Ron Tal said at the press conference, "This is a strategic infrastructure venture of national significance. The entry of a leading Israeli communications company with a national commitment and a tradition as a leading partner in the project will give the fiber optic venture a real opportunity to deal with a competitive market. Together with IEC, this will give a big boost to a necessary historic revolution in Internet infrastructure in Israel."
"The change in the communications licenses and IBC's deployment obligations that the Ministry of Communications is likely to make will give IBC an opportunity to carry out this important venture and provide a real alternative of modern advanced communications infrastructure, while maintaining deployment between the central region and the outlying areas."
IEC CEO Ofer Bloch added, "The new partnership with Cellcom will help IBC meet the business and strategic targets and give its customers the best product and the best service in the communications field. I am confident that together with Cellcom, we will able to lead IBC and make it an important player in the communications market, so that people in Israel will be able to choose and enjoy symmetrical surfing speed of at least 100 mbps."
Cellcom chairperson Ami Erel said, "For Cellcom, this is an opportunity to enter a sphere that we have been missing up unit now." He praised IEC for the fairness it had shown in the negotiations and its willingness to complete them successfully.
Erel thanked the Ministry of Communications for realizing the venture' importance and not letting competitors put Israel in an inferior position in infrastructure investments. "We have no choice other than to do this. It is clear to us that when we enter, there will be a war. We have confidence in Cellcom and its shareholders believe in it. The television market was exactly like the infrastructure market is now. Cellcom is able to get to a place that will diversify its business."
Published by Globes [online], Israel business news - www.globes-online.com - on August 8, 2018
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