It is possible to understand the concerns of Hot Cable Systems Media Ltd. (TASE: HOT) CEO Herzl Ozer, when he wrote to Prime Minister Benjamin Netanyahu to warn against the entry of Israel Electric Corporation (IEC) (TASE: ELEC.B22) into the telecommunications infrastructure market. Every report about progress in IEC's pilot to connect private customers to its fiber optic network makes the hearts of Ozer and HOT shareholders skip a beat.
Like a scene from a horror movie, HOT, whose financial condition is well known, and which has begun to upgrade its broadband network in its bitter and Sisyphean struggle against Bezeq The Israeli Telecommunication Co. Ltd. (TASE: BEZQ), now finds itself fighting on a second front against an enemy on a scale not previously encountered. What CEO would not worry about the soundness of his company when such a giant enters its territory?
If it is any consolation to Ozer, Bezeq CEO Avi Gabbay is not sleeping well, either. Nor is the company's new controlling shareholder, Shaul Elovitch. Everyone remembers a similar attempt that failed a decade ago, when the politicians capitulated to the Bezeq workers committee when the company was government owned.
It is not the case that Bezeq has lost its power, but it is now a private company, and its conduct has changed. Bezeq's workers committee now prefers to work behind the scenes and to speak quietly with the politicians and ministers. It now has the wisdom of a private company's union that seeks to avoid unnecessary wars, and knows the price charts.
In fact there is no reason for IEC not to enter the telecommunications infrastructure market; but how the entry is handled is critical. It is necessary to ensure terms that will prevent the IEC workers committee from dominating Israel's the telecommunications infrastructure, in addition to the national electricity grid.
But, in the end, IEC has to enter the market so that 012 Smile Telecom Ltd. and other added value providers can benefit from access to customers who are independent of HOT and Bezeq's goodwill. The last mile to customers' homes is the problem of every telecommunications company without its own infrastructure, and IEC needs to conduct the pilot of its technology in order to learn how to do it. The company's fiber optic network is everywhere, but to get it connected to households still has a long way to go.
Bezeq and HOT are paying a heavy price for their decisions years ago not to invest in upgrading their networks, because that would have kept IEC out of their market, and because of the current quality of their Internet service.
Bezeq formulated its network upgrade plan at least five or six years ago, but only in the last couple of years did the company begin an upgrade that will boost Internet access speeds to just 20-30 Mbps. HOT, too, which began its network upgrade only last year, is doing so only out of fear of Bezeq's upgrade.
In other words, the household market is lagging and the companies are now belatedly trying to fix the matter. The government is also belatedly taking responsibility and trying to return Israel to the pinnacle of countries with advanced telecommunications.
Published by Globes [online], Israel business news - www.globes-online.com - on March 1, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010