On November 15, Antitrust Authority director general Dror Strum's extension for the merger of Israel's cable companies, Matav-Cable Systems Media (Nasdaq: MATV; TASE:MATV), Golden Channels and Tevel, will expire. At every opportunity, Strum has warned that he would not further extend the merger permit, under which the cable companies collaborate in marketing and content, unless they receive a telephony over the cable network license and sell their holdings in the content companies by the deadline.
The second condition will probably be met. As for the first, no solution seems in the offing. A few days ago, Strum notified the cable companies' attorney handling the merger, Adv. Zvi Agmon, that he expected them to fulfill the conditions for extending their merger permit at least two week before the deadline, and not wait until the last minute.
Strum implied that he expects the cable companies to present a Ministry of Communications license to provide telephony services over the cable network by November 1. Right now, that sounds like a bad joke. To get a license, the cable companies first have to apply for one. To date, they have only applied for, and received, a license to conduct a test of their telephony network. The test has not even started yet.
In order to apply for a telephony license, there must be an entity to receive it. There isn’t one. At the moment, the cable companies may not merge, due to borrower restrictions imposed by Supervisor of Bank Yoav Lehman. Strum proposed a solution to this problem: the three unmerged cable companies should set up a jointly-owned telephony company that will receive the telephony license and operate telephony services over the cable network.
The cable companies accepted the proposal as the only viable solution at this time. But the solution has a sting: in order to establish a joint company, the cable companies must agree on each company's stake in it. They now have until November 1 to reach an agreement on this issue, establish the company, apply for the telephony license, receive it, and present it to Strum.
Is this possible? It's said that everything is possible, but go tell that to the cable companies. As of now, the cable companies' shareholders are engaged in an interminable argument on how to divide ownership in the joint telephony company. Will the shares be allocated according to the present number of cable television subscribers or the number of high-speed Internet subscribers?
One source said yesterday that if you were to ask ten people in the communications market if the cable companies would reach an agreement on the ownership structure of the telephony company, nine of them would bet that they would not. The cable companies are already deadlocked over their own ownership structures. It would a historic precedent if they are able to reach an agreement on the ownership structure of a company that does not even exist yet.
What will happen? The cable companies are certain, like always, that everything will be all right. Just as they were certain that the merger would take place. But then Lehman, who has no connection to the communications market, ruled that there would not be a merger. What about Strum? To date, despite difficult confrontations between him and the cable companies, the companies' owners have been able to reach arrangements with Strum. He has not yet overturned the game board. Now that Lehman did just that, stunning the cable companies' owners, is it now Strum's turn?
Who will benefit? The beneficiary will naturally be the cable companies' competitor, YES satellite broadcaster. YES jumped at the chance, and wrote Strum an urgent letter, through its attorney, unequivocally demanding that the cable companies' merger permit be revoked. YES alleges that the permit allows the cable companies to operate under a de facto restraint of trade arrangement, with the approval of the Restrictive Trade Practices Tribunal. Unquestionably, Israel's multi-channel television companies, which have specialized in airing soap operas during the past two years, have turned themselves into the most gripping soap opera of all.
Published by Globes [online] - www.globes.co.il - on October 22, 2003