Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) is closed to completing a deal for acquiring control of the Unlimited fiber-optic venture. Sources inform "Globes" that the company is in advanced negotiations with the enterprise's shareholders (except for Israel Electric Corporation (IEC) (TASE: ELEC.B22), which will continue to hold 40% of the venture). The deal is subject to approval from the Ministry of Communications and a revision of the venture's license restricting its deployment obligation to only 40%, instead of the universal deployment obligation that currently applies.
Under the impending deal, Cellcom will acquire all the shares of the shareholders except for IEC. It is believed that the Ministry of Communications will approve this change in the license. Besides IEC, the consortium of shareholders includes Via Europe (30%) and Rapac Communication and Infrastructure Ltd. (TASE: RPAC), Bynet, and BATM Advanced Communications Ltd. (LSE: BVC) (7.5% each). The venture bought the remaining 7.5% from Tamares Telecom.
When the deal is completed, Cellcom will be able to concentrate on raising the financing to continue the project. It will probably turn to institutional investors and offer them a partnership in the venture. The investment involved amounts to hundreds of millions of shekels, if not more. Cellcom has already announced that it wants to add partners to the venture, which it regards as very important. Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR), another candidate for investing in the venture, has said that if it regards the project as economically worthwhile, it will take part in it.
In any case, the venture is unrelated to the negotiations between Cellcom and Partner on cooperation in fiber-optic deployment to enable each company to use the other's deployment. The purpose of the venture is to operate as a force multiplier in fiber-optic deployment and avoid a situation in which Cellcom or Partner reach and invest in the same construction.
With the completion of the deal and the acquisition of the stakes of the existing shareholders in the venture, Cellcom will also be free to handle its complicated and difficult contract with Cisco Systems, which is actually behind the venture and initially supported it (Via Europe was only the venture's formal leader). The agreement with Cisco gives that company exclusivity in exchange for suppliers' credit. As a result, Cisco sold equipment to the venture at very high prices.
The venture has worked on a very low gear for the past two years, mainly due to the fact that IEC kept it afloat by not demanding payment of the venture's debts to it. Had the venture been forced to pay its debts to IEC, it quite possibly would have ceased to exist, because it ran out of cash a long time ago. In the absence of shareholders continuing to subsidize it, no banks would do so.
The venture has connected 10,000 households to its network over the past two years. Most of the connected customers have 100 symmetric mega on fiber-optics reaching their buildings, from which the network is connected directly to the apartment. The venture already has access to tens of thousands of households all over Israel. Entry by Cellcom will put new life into the venture by changing its economic model and turning it into a real communications company.
Published by Globes [online], Israel business news - www.globes-online.com - on July 29, 2018
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