Newly appointed Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) CEO Avi Gabbay has officially begun taking the reins from outgoing CEO Nir Sztern, who is becoming Paz Oil Company Ltd. (TASE:PZOL) CEO. Over the past two weeks, the former Labor party leader and Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) CEO has been meeting Cellcom's senior executives and getting acquainted from close up with the company's operations.
Gabbay is joining a company that faces intense competition from its rivals in the telecom market and is struggling to become profitable and invest in infrastructure. Talk of a merger has been circulating for some time and for two years Cellcom has been holding talks over a merger with Hot Telecommunication Systems Ltd. (TASE: HOT). Even though the merger has not been realized that doesn't mean that it is entirely off the agenda.
Any mergers will reduce the number of players in a saturated market and consumers will pay the price. But that doesn't bother Israel's mobile phone companies who see mergers as inevitable and that the regulator understands that. The question is what any mergers will look like - two smaller companies joining forces, a big fish swallowing a little fish, or two of the major players merging.
Sources who know Gabbay say that he would prefer a merger with one of the other major telecom players - Hot or Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR). Acquiring a smaller rival has advantages in terms of price but merging with a small company could lead to other rivals disrupting the market with aggressive sales campaigns thus causing another major player to buy them up.
Sources close to Gabbay say that he will try to merge with either Hot or Golan Telecom - a medium-sized player. A much less likely possibility, but one that could happen, is that Cellcom would merge with Partner. But the regulator would be unlikely to approve such a deal.
Hot would be the best option for Cellcom but an expensive one. Moreover, while Hot has many cable TV subscriber, it broadcasts using old technology and it would be expensive to transfer them to Internet broadcasts.
What to do with Cellcom TV will also be high on the agenda. This is an expensive project, which weighs on the company's results and Cellcom is likely to reduce investment in content and focus, like Partner TV, on making more existing content available.
Gabbay will also have to decide whether to let Partner join the IBC fiber-optic venture ownership structure.
Gabbay will also have to decide on whether to implement layoffs of about 10% of the workforce. In addition he must determine whether there is any options for raising prices in a highly competitive market.
Published by Globes, Israel business news - en.globes.co.il - on January 20, 2020
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