Cooperation between Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) and Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) is about to be stepped up. While the two companies are negotiating common use of the IBC fiber optics venture to compete with the Internet infrastructure of HOT Telecommunication Systems Ltd. (TASE: HOT) and Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ), sources inform "Globes" that the two companies have decided to expand the negotiations to include an option for Partner entering IBC as a partner.
Last month, Cellcom reported that it had signed a memorandum of understanding in the IBC venture to acquire 70% of it for NIS 100 million. Israel Electric Corporation (IEC) (TASE: ELEC.B22) is retaining the other 30%. Cellcom undertook to inject hundreds of millions into the venture for its continued development. The deal was signed after the Ministry of Communications approved a change in the IBC license terms replacing the requirement for nationwide deployment with a requirement for connecting at least 40% of households in Israel.
The negotiations between Cellcom and Partner over common use of the landline infrastructure deployed by them have been underway for a long time. The companies announced that their negotiations were aimed at enabling each of them to use the other's infrastructure; in other words, instead of each company deploying its own independent infrastructure in the same areas, each company will deploy infrastructure in a different area and give the other the right to use it. This will double their potential deployment and create a mass of accessibility that will enable them to compete with Bezeq for connecting customers to high-speed Internet and and put pressure on Bezeq to cut usage prices for its infrastructure.
The IBC venture's infrastructure reaches 150,000 homes in Israel. Partner has said in the past that if it gets a good business offer from Cellcom to join the venture, it will give it positive consideration. Actually, as soon as Cellcom signed the memorandum of understanding, it was obvious that Partner would be one of the first companies that would try to join the project, because both companies had a common interest; they were already deploying fiber optics and negotiating for common use of what was deployed.
Partner said in the past that the infrastructure it had already deployed reached 170,000 households, and Cellcom had a connection to tens of thousand more households. With the addition of the households reached by IBC's infrastructure, a critical mass can arise that is likely to threaten Bezeq and Hot.
Assessments in the market say that in the future, Hot is likely to join the venture because upgrading the fibers in its network in essence means construction of a new fiber optic network at very high cost. At this stage, Hot is refraining from upgrading its network. It is likely that if Hot wants to join the IBC venture, it will encounter opposition from the Ministry of Communications, which wants to see three independent infrastructure networks competing with each other, not two. It is difficult to tell at this stage, however, in which direction events will develop.
Published by Globes [online], Israel business news - www.globes-online.com - on September 2, 2018
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