Cellcom and Xfone sign network sharing deal

Hezi Bezalel

Cellcom has replaced Golan Telecom with Hezi Bezalel's 018 Xfone as a partner in a ten-year network sharing deal.

Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) is making up for lost Golan Telecom Ltd. revenue through a network sharing agreement with Hezi Bezalel's 018 Xfone Communications Ltd. . Bezalel has conducted network sharing negotiations with Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) and Pelephone Communications Ltd. but after realizing negotiations were treading water turned to Cellcom, which lost Golan Telecom at the same time, after the latter company decided to transfer its clients to HOT Mobile Ltd..

The agreement is expected to end rumors regarding Bezalel and his intentions to enter the local cellular market, after he acquired frequencies some 18 months ago, and has been tarrying since with the network sharing agreement he is required to sign, raising questions regarding his real intentions.

As part of the agreement, the companies announced cooperation regarding the development of a shared 4G network, which will use the 4G frequencies of both parties and be operated by a separate entity. According to Ministry of Communications policy, the network must be owned by both companies in order to ensure that both invest equally and that the new player is devoted to network establishment rather than long-term to investments. As part of this policy, the companies stated that they will provide each other with indefeasible right of use (IRU) of the radio network, with each company having an independent network core. In parallel, Cellcom will provide Xfone with hosting services in relation to its 2G and 3G networks. This agreement will be signed for ten years.

According to Cellcom's stock exchange announcement, Xfone will pay approximately NIS 45 million per annum for passive network components, in 12 monthly installments. Operation costs for the shared 4G network, as well as the 2G and 3G networks (active and passive) will be divided equally between the parties with a fixed price component (subject to certain discount arrangements dependent on Xfone's subscriber number) and a variable price component which will be paid by the parties based on the relative data usage by their subscribers (as defined in the agreement).

During up to the first five years, starting on the effective date, XFone shall be entitled to a discount on the said payments for the IRU to the passive elements and its share of the operation costs, according to which, such payments will be replaced with a monthly payment per subscriber to Cellcom of NIS 25 in the first year, NIS 27.5 in the second year and NIS 30 thereafter, plus VAT, but in any case not less than the minimum annual amounts set in the agreement (ranging between NIS 20 million in the first year and NIS 110 million in the fifth year).

The agreement is preconditioned by the receipt of any required regulatory approval including the approval of the Antitrust Commissioner and the Ministry of Communications.

The Ministry of Communications responded, "The ministry is pleased with the Xfone-Cellcom announcement regarding 4G network sharing. This is an important step in improving Israel's advanced communications infrastructure, while maintaining competition. The ministry's representatives will meet with company representatives today for an initial discussion on the attained agreement."

Xfone owner, businessman Hezi Bezalel, said, "This is a special day for Israeli consumers and the local cellular market. This will have great contribution to the consumer's line and I am confident we will provide our customers with high standard services."

Xfone CEO Yakov Nadvorni said, "018 Xfone intends to launch competitive, advanced and fair cellular services. As a new operator, Xfone will ensure competition in the cellular field, for the benefit of the Israeli consumer." In addition, he said that according to a license of an operator with cellular infrastructure, and according to Ministry of communications policy, Xfone, in cooperation with Cellcom, are scheduling investments of hundreds of millions of shekels in establishing technology for 4G LTE networks and 4.5G LTE ADVANCED technology. These investments will take the Israeli communication infrastructures to the next level, accelerate browsing speed along with a development of advanced services such as IoT and others.

Published by Globes [online], Israel business news - www.globes-online.com - on July 12, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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