1. HOT
All those who rushed to celebrate the upcoming cancellation of the triple package offered by HOT Telecommunication Systems Ltd. (TASE: HOT) are advised to wait. Although the professional opinion in the Ministry of Finance is that this would be the right thing to do, and that it would help to create a level playing field, the story isn't over yet.
The road to cancellation of the package lies via a public hearing, and as we have often seen, at such hearings it's known what is being put into the pot, but not necessarily what will come out. This means that it doesn't matter what the policy document says, in the end it is the hearing that will decide, and so we have to wait and see how things develop.
Every party comes to an end
Over the years, the experience of Stella Handler of the ins and outs of the Ministry of Communications has proved its value, and more than once she has managed to persuade the decision makers to change their policy. In the past year, as HOT chairwoman, she has apparently carried on the good work, and the company has enjoyed considerable credit at the ministry.
However, it turns out that every party comes to an end, and the blow that HOT is about to sustain makes Handler's entire strategy over the year look hollow, particularly insofar as it concerns HOT's entry into the Internet market.
HOT's advent as an ISP shook up the communications market, and Handler was euphoric that the regulator seemed to be with her all the way. But matters need to be thought through right to the end. Cold analysis shows that HOT lost from the move, big time. Just look what has happened here. First of all, if the company hadn't become an ISP, the question of the use of its infrastructure (the giga agreement) would never have become an open subject of discussion. Entering this field without rigid structural separation between it and its ISP arm HOTnet, while breaching the prohibition on joint marketing, brought the entire industry down on its head. The cruelly competitive triple package that it offered an additional NIS 20 for 100 mbps broadband is now boomeranging on it, and the result is that the agreement is about to be cancelled, for good reasons that I won't go into now.
Add to that the cancellation of the triple package, an offering that chiefly served to show that HOT was pissing on everybody from the high board and exploiting its television monopoly, and you get a severe regulatory response.
For all that, as mentioned, we have to wait and see what happens in the hearing. Even so, HOT couldn't have expected such an outcome in its most pessimistic forecasts. It emerges that Handler's replacement at 012 Smile, Offer Peri, knows how to work professionally vis-à-vis the regulator no less than her.
2. Bezeq
The capital market has had its say. Minister of Communications Moshe Kahlon's reform is going to be of huge benefit to Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ), which is why its share price has shot up, and will continue to rise. Bezeq under Avi Gabbay is sharp, focused, but also vey cautious.
It's hard to envisage regulatory scenarios that will prevent it from growing. The company has simply got smarter, and knows how to cope with all the slings and arrows for one good reason: it has stopped expecting the minister of communications or someone on his behalf to do things for it. When there are no expectations, there are no disappointments.
Bezeq has bitter experience of regulatory battles. When restrictions are lifted, it's a dream come true, and on top of that the removal of the requirement for structural separation will enable it to save hundreds of millions of shekels a year.
The monopolies run wild
Bezeq's know-how is such that there is no doubting that it will be hugely strengthened by the reform. Look for example at what happened when the company announced this week that it was raising Internet connection prices. It went smoothly partly because of the hoo-hah about the reform in the fixed-line market, but even now no-one has protested over a price hike of tens of percentage points.
With a social protest over the cost of living in the background, and newspaper headlines about the cost of cottage cheese, not a squeak has been heard about Bezeq's Internet prices rising. One also wonders why Kahlon has made no public pronouncements such as he did when HOT raised prices. Further proof that Israel's monopolies are running wild.
3. Partner
Ilan Ben-Dov is trying to sell his controlling stake in Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR), so it is not certain whether he will benefit from the fruits of the fixed-line market reform. He seeks to sell investors a dream called television and competing in fixed-line telephony, and he has now received backing for that from Kahlon. Ben-Dov dreams of a telecommunications group that provides consumers with everything they want, and now it looks as though he has received an opportunity to do just that.
The rise in Partner's share price appears to indicate that the capital market supports the idea. Further reason for the rise is the high probability that the NIS 320 million write down that Partner made in the value of 012 Smile will be reversed. It won't happen soon, but it could certainly happen in the next quarter, or two quarters after the market stabilizes in its new format.
4. Cellcom
Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) is in an interesting position with the opening of the wholesale market. Thanks to its fixed-line infrastructure, it could expand its investment in this area. It doesn't take a wholesale market to be able to go into television, but the company has a widespread optical network that could make it easier for it to compete.
Nevertheless, given the state of the controlling shareholders in Cellcom, it's hard to see the company entering on new adventures and investing more heavily in its fixed-line infrastructure. Why dig if you can simply buy from Bezeq, and why invest at the expense of dividends?
5. What about the consumer?
In the final analysis, Kahlon's reform is very good for the companies, and less good for consumers. Do consumers really want Internet services, telephone, and a connection to Yes satellite television (DBS Satellite Services (1998) Ltd.) all from Bezeq, or are there those who would prefer one product per company? And what will happen to a consumer who wants to leave such an arrangement? The difficulty of doing so is only being made greater.
To sum up, in the short term, it's worth staying optimistic and hoping for a change for the better in the communications industry and that prices really will fall. As for the longer term, well, who really cares about that anyway? As a politician, Kahlon can boast an achievement. He has managed to instill the perception that the reform of the fixed-line market is a continuation of the reform of the mobile market. This newspaper, and his pet journalists, praise and glorify him, and so this is a time to celebrate, not to criticize.
Published by Globes [online], Israel business news - www.globes-online.com - on April 19, 2012
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