Bidders in the Israel Electric Corporation (IEC) (TASE: ELEC.B22) fiber optic venture were bitterly disappointed by the tender committee's responses to their requests for clarifications. The responses were delivered on Friday, and under the tender timetable, the bidders have two weeks to submit binding bids and a financing structure from a bank.
The bidders' queries focused on the problematic condition of Israel's telecommunications market, and the lack of a clear policy needed for formulating a business plan for the IEC venture.
Most of the problems are related to the Ministry of Communications' responsibilities, sending the ball back to Minister of Communications Moshe Kahlon's court. He will apparently have to return to Israel to devote time to Israel's future communications market instead of its welfare problems.
The tenders committee and the Ministry of Communications have not been working together, with the result that the ministry has no idea about the venture's problems and how they are connected to ministry policy. Specifically, the bidders want to know whether or not the government will set price controls on infrastructures owned by Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ).
If there will be a price regime on the infrastructure, this will make it more difficult for the IEC venture to get off the ground. Some of the bidders say the matter is irrelevant, while others say that price control on HOT Telecommunication Systems Ltd. (TASE: HOT) and Bezeq's infrastructures will enable the IEC venture to rely on them in areas where it is difficult to reach customers.
These bidders attach great importance to the measures that Kahlon will implement, and whether he will allow mobile carriers Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) and Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) to own small stakes in the IEC venture. In other words, there must be a commitment by the two carriers to use the new infrastructure, otherwise it will have no customers. Both Partner and Cellcom say that without price controls, they will not participate in the venture, in which case it will never be established, because it needs Bezeq and HOT's infrastructures to complete the deployment of fiber optic lines in areas that are too costly to reach.
The tenders committee agreed to amend clauses relating to the venture's deployment, such as interim deployments, and it agreed to lower the costs of IEC employees who work for the venture. But in general, its responses are very problematic as they stand now, and it is doubtful that the bidders will participate in the tended under its current terms.
The bidders believe that there is no alternative but to postpone the tender by several months, because that is how long it will take to secure financing from the banks. This is irrespective of discussions on other important issues.
The banks are unenthusiastic about financing the IEC venture under the current terms, and they have to carry out a feasibility study of it.
Kahlon declined to respond, saying only that the matter was under review.
Published by Globes [online], Israel business news - www.globes-online.com - on February 28, 2012
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