Last week, the Via Europa consortium was officially crowned the winner of the Israel Electric Corporation fiber optic tender. Via Europa will collaborate with Cisco and a group of Israeli investors in deploying fiber optic cable to homes. The process is due to begin late this year or early next. The players that will lead the venture have undertaken that the fiber optic network will reach 65% of households within seven years, and the rest within 20 years.
Twenty years is an eternity, but the big winner from the venture can already be announced the Israeli public. In order to understand why the venture benefits the general public, one has only to recall how Hot tried to have it shelved, and how Bezeq pretended to be indifferent. In fact, both companies are very worried, and rightly so. How does the public's victory manifest itself? It's highly likely that if the venture had not gone ahead, Bezeq would not have stepped up its deployment of fiber optic cable, and it's doubtful whether Hot would be investing as it is in telecommunications cabinets for its customers.
Bezeq is already deploying fiber optic cable in several towns, among them Ramat Hasharon, Nes Ziona, and Modi'in, in order to mount competition with the new venture. Were it not for the previous minister of communications, Moshe Kahlon, a Swedish entrepreneur with a bee in his bonnet, and an Israel Electricity Corporation crying out for diversification of its sources of revenue, this would not be happening. The convergence of these three factors is what made it possible for the venture to get underway.
Jonas Birgersson, owner of Via Europa, is a young Swedish entrepreneur with a religious faith in the fiber optic model. As far as he is concerned, copper wire and coaxial cable are about to disappear, and the only thing that will bring salvation to the world is fiber optic to the home (FTTH). Birgersson has the ability to captivate his listeners. This young man has built a precise model derived from his general outlook.
If everyone benefits from FTTH, and there is no disputing that they do, then if Bezeq and the cable companies enter the arena, that's absolutely fine. There is no need to hold them back with regulatory tools to give Birgersson's venture an advantage. From his point of view, Bezeq and Hot's investments in FTTH is a kind of success, since they have to find solutions for copper wiring buried in the ground, and in which billions have been invested, and they have to explain to their investors why they waited until now for the Swede and didn't do it earlier, if it's so good.
One of the interesting points about Birgersson is that he has managed to demonstrate that everywhere that fiber optic ventures have entered into competition with telephone and cable companies, they have succeeded in taking a substantial market share. What is meant by substantial and how it is measurable is another question, to do with the venture's profitability, but clearly, even a market share of 10-15% of households means tough competition for Bezeq and Hot, and Via Europa has plans to do better than that.
The Swede's motto is OSG, standing for Open, Symmetry, Gigabit. Open refers to access to all service providers. A customer who hooks up to the company's fiber optic cable comes to a services store in which appear the service providers from which the customer can choose. Symmetry means that download and upload speeds on the fiber optic cable connected to the customer's home will always be symmetrical. Gigabit is the surfing speed that each customer will receive at home. It sounds good, but the problem is that Bezeq can and will do exactly the same.
Cisco's participation in the venture is welcome. It is clear to anyone who knows anything that, without Cisco, there is no venture. The US giant will finance the venture until it stands on its own two feet, and it will be the main equipment supplier. Cisco, and its CEO John Chambers, have a special relationship with Israel. The company maintains a development center here, it has bought Israeli companies to the tune of billions of dollars, and it feels strongly committed to the venture.
Last week, Chambers visited the Holy Land, and spoke of Israel becoming "a digital country" thanks to the venture. Whoever read between the lines could discern the commitment that Cisco has taken upon itself in this project. This is the first time that Cisco will carry out a project of this kind on the scale of a whole country. Up to now, its partnership with Via Europa in similar ventures has been limited to various cities in Europe and the US.
In Israel, a small country, the venture will serve as a test site, and as a huge sales promotion for Cisco. In this context too we emerge winners, because the commitment of Cisco, and of Chambers personally, to the venture is priceless. Cisco is taking a risk that its customers Hot and Bezeq won't like its involvement in the venture, and will cut back procurement from it. This is another reason to laud Cisco for the risk it is taking.
Will the wholesale market undermine the project?
At his meeting with Minister of Communications Gilad Erdan last week, Chambers was asked about the emerging threat from the new wholesale market, that is, the obligation imposed on Bezeq and Hot to enable competitors seeking to compete in the landline market to use their infrastructures.
The significance of this is that Bezeq and Hot will compete with the fiber optic venture for the same customers, especially two outstanding customers, Partner and Cellcom. We should recall that the venture does not sell services to customers directly, but must sell infrastructure to external competitors that in turn sell to customers. Chambers answered in the negative.
What Bezeq and Hot will do doesn't scare him and doesn't interest him. He wants to bring on OSG, and to be the best at it. Period. Far be it from us to cast doubt on what Chambers says, but it could be that he is not assessing the forces in the market correctly. Bezeq without structural separation and without regulated prices is a monopoly capable of competing with this venture without especial difficulty and of offering exactly the same technology, if it's allowed to, of course. Hot is more threatened because of its television service and the fact that video via the Internet is becoming stronger all the time. But whatever happens, we have already gained.
Published by Globes [online], Israel business news - www.globes-online.com - on June 26, 2013
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