Something strange is happening today to the owners and managers of Israeli cable companies on their way to their subscribers. On the one hand Israel is one of the countries with the highest cable penetration levels, into some 70% of Israeli households (or, more precisely, 1.04 million households as at end of January 1998). On the other hand there are five companies (Golden Channels, Matav, Tevel, Gvanim, and Idan), who are conducting an hysterical rearguard action against the Ministry of Communications’ intentions to open the field to competition even before their concessions end, by allowing a concessionaire, or concessionaires, to start high power satellite (DBS) broadcasts.
While carrying on this litigious rearguard fight, the cable companies are investing millions of dollars in building up the infrastructure in outlying areas, in order to provide service to just those settlements they previously deliberately avoided connecting to, claiming it was uneconomical.
And, as though there were no fear of the market disappearing, precisely at this juncture the cable industry has suddenly become the most attractive on the market. It is not just that external parties want to enter, but the companies themselves want to merge with each other in order to grow.
There is a petition on the table of the High Court of Justice from the cable companies, claiming the DBS legislation (an amendment to the Bezeq Law which passed early in January this year allowing licenses to be granted, or publication of tenders, for DBS concessions) violates their proprietary rights granted in the exclusive concessions they hold till 2002-2005 (depending on company and region).
There is another petition on the way to the High Court of Justice, which, in contrast to the previous blocking petition, has a positive intent, being aimed against the State’s refusal to allow cable companies the possibility of providing satellite services, via the ‘Amos’ satellite, to outlying areas that are not connected to the cable network.
If all the cable concessionaires’ legal walls crumble, and all the deregulation initiatives of Minister of Communications Limor Livnat, and the director-general of her ministry, Danny Rosenne are realised, we will come to the question of price. The companies are already preparing a huge compensation claim for hundreds of millions of dollars, which they believe is due to them on account of the damage they will suffer from the opening up of the market to competition, and violation of the concessions granted them.
Buyers Only
Despite everything, the cable companies shares are slowly acquiring a buyers only status. This started with Most, owned by the Russian Jewish millionaire Vladimir Gusiinsky, who announced in September 1997 that he was paying $24.5 million to acquire of 10% of Matav from businessman Hanania Gibstein. This amounted to $946 each in terms of cost per subscriber.
This was just the opening shot. Another deal was reported in December 1997, when Fishman Holdings and Golden Lines bought Idan from The Israel Corporation and US company Omega. Here the price rose significantly. The selling price was $103 million, but rises to $120 million when one takes into account the purchasers’ undertakings to repay loans. On this bass, the cost per subscriber is $1,090.
Apart from the fact that the price level rose above the amount considered average and normal on the Israeli market - $1,000 per subscriber - this was a clear indication of a trend: Aurec, Yediot Aharonot (owners of Golden Channels), and Eliezer Fishman, believe in the future of cable television in Israel, even with the opening up of general competition, and, more importantly - despite the opening up to competition. This contrasts with the message the cable companies are trying to get across to the State and the public.
However, it is not just in Israel that people believe in the attractiveness of the local cable industry. A US group of investors wants to pay $240 million for all the shares of Gvanim, controlled by Telrad Holdings, Monitin Publishing, and the Swiss company CableCom, thus raising the cost per subscriber level to $1,730. This is the accepted level in the US where deregulation has already taken place. Theoretically, at least, the US market has free competition, there is no lack of clarity in the business outlook, and all the cable companies have the deregulation process behind them.
The deregulation process in Israel over the next two years is likely to use up a significant amount of the companies’ capital, and this is an inevitable fact, if only because the DBS companies will start competing, with digital technology.
Published by Israel's Business Arena March 4, 1998