Ministry nixes Cellcom-Golan network merger

Nir Sztern and Michael Golan
Nir Sztern and Michael Golan

The Ministry of Communications does not want to release Golan Telecom from its investment obligations.

The networks consolidation agreement between Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) and Golan Telecom Ltd. is in trouble, with the Ministry of Communications demanding changes in it. The Ministry sent a letter to the two companies last Thursday notifying them that the agreement did not conform to its policy document concerning consolidation of networks, and the company would therefore have to make changes in their agreement.

This is the second time that the Ministry of Communications has intervened in an agreement that runs counter to its policy. The agreement between the two companies attempted to meet the Ministry's requirements, but the Ministry apparently did not accept the fact that the venture releases Golan Telecom from the obligations imposed on it as part of its selection in the 3G tender when it entered the market, and focuses excessively on the 4G network. The Ministry of Communications is demanding that the networks consolidation agreement between the companies prove that Golan Telecom is bearing the burden of the investments required of it for the 3G network, as well as the 4G network.

Like HOT Mobile Ltd., Golan Telecom undertook to set up a 3G network as part of winning the frequencies tender in 2011, when it entered the market. For various reasons, the companies had a great deal of difficulty in meeting the obligation to set up the network, but in general, the Ministry of Communications also realized that at the current time, this task could not be accomplished, due to the difficulty in establishing sites.

Outgoing Minister of Communications Gilad Erdan initiated the constriction and consolidation of networks, aimed at making it possible to establish only three networks in Israel, with ownership divided among the operators. In other words, Golan Telecom and Hot Mobile will have to convert the investment in 3G that they undertook into investment in 4G in the form of a joint network owned in equal shares together with the veteran operators.

In practice, the agreement that released the two new companies from their obligation to set up a 3G network is very generous to them; it enables them to substantially reduce the investment required of them, and to convert it to into a generous and broad consolidation agreement with the veteran operators.

The agreement between Hot Mobile and Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) is very close to gaining approval, but it turns out that the Ministry of Communications believes that the agreement between Golan Telecom and Cellcom needs changes, because in the Ministry's opinion, the agreement does not really convert Golan Telecom's 3G investment into a joint 4G network, and the Ministry is therefore demanded that the agreement be revised to take this into account.

Keep in mind that the main complaint against Golan Telecom is that the company is in effect becoming a virtual operator on the Cellcom network, and that the Ministry of Communications is thereby releasing Golan Telecom from the obligations imposed on it as a full cellular operator that maintains and operates a network. The chief criticism of the Ministry is that it is allowing Golan Telecom to plow into the market without the burden of investment and setting a network, with all the resulting consequences, thereby enabling the company to sell cellular services at such low prices and imperil the veteran companies.

Published by Globes [online], Israel business news - www.globes-online.com - on March 29, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Nir Sztern and Michael Golan
Nir Sztern and Michael Golan
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