The Ministry of Finance has notified Michael Golan that it intends to take away the frequencies being used by Golan Telecom Ltd. if the sale of the company to Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) is completed. The announcement poses a concrete danger to the deal. It appears that the Ministry of Finance has marked this deal as one that must be prevented at all costs, due to the damage it is expected to cause - higher prices in the cellular market.
The Ministry of Finance Accountant General can withdraw Golan Telecom's frequencies, but the legal procedure is complicated, because it is clear that both Golan Telecom and Cellcom will contest the measure. The Ministry of Finance also requires cooperation in the matter from the Ministry of Communications, which does not oppose the deal, and a struggle between the two ministries could ensue. It is obvious that in this case, the dispute would become political, involving Prime Minister Benjamin Netanyahu in his position as Minister of Communications and Minister of Finance Moshe Kahlon, who was Minister of Communications when Golan Telecom entered the market and, together with HOT Mobile Ltd., introduced competition there.
Less than two weeks ago, on November 5, Michael Golan signed a contract to sell Golan Telecom to Cellcom for NIS 1.6 billion in a deal subject to approval from the Ministry of Communications and the Antitrust Authority. Golan has 2,100 MHz frequencies that he received for the purpose of setting up a 3G network and 1,800 MHz frequencies for setting up a 4G network. The 4G frequencies are conditional on setting up a joint network, meaning that as a condition in the tender, the company must invest in consolidation of networks with an existing operator. The Ministry of Communications, however, did not approve the consolidation agreement between Golan Telecom and Cellcom, and as a result, Golan Telecom decided to dismantle its network and be sold to another company.
Since the frequencies that Golan Telecom received were marked for the establishment of a joint network, Golan Telecom is in effect trading in frequencies that it obtained from the state, and the state therefore has grounds for arguing that its breach of the license terms entitles the state to demand the return of the frequencies. The frequencies are granted as a usage right, meaning that ownership of them is limited and conditional. The state therefore allegedly has the right to take action if the license terms are violated. It should be taken into account, however, that a great deal of time remains before the deal is completed, and that there could be many developments in the market by that time. It also cannot be ruled out that the Ministry of Finance could change its mind. As of now, however, it appears that the Ministry of Finance is heading into a legal battle against the deal. The contract between Cellcom and Golan Telecom addresses the question of frequencies; in other words, it takes into account the possibility that the frequencies could be taken away from Golan Telecom and not given to Cellcom as part of the deal. If Golan Telecom is deprived of the frequencies, the state plans to put them back in the market through another tender. Golan Telecom and Cellcom declined to respond to the report.
Published by Globes [online], Israel business news - www.globes-online.com - on November 17, 2015
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