The "dormant subscribers" or "double subscribers" affair at Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) subsidiary Bezeq International is much more significant than appeared at first. At the end of last week, Bezeq stated that it was writing NIS 200-300 million off the value of the subsidiary in its forthcoming quarterly financials. The affair indicates a deep failure in the entire control and audit system in the group and what is known as Alpha (Bezeq's Bezeq International, Yes, and Pelephone units), in its audit committee and board of directors, and, in the end, in the control and supervision system at the Ministry of Communications.
The phenomenon of the double subscribers in the Internet market stems from the split peculiar to Israel between infrastructure provider and service provider (ISP). While a customer cannot have two infrastructures, he can certainly be charged by two ISPs, and not even be aware of it. Many customers switch from one ISP to another, and do not complete the process of disconnecting themselves from the ISP they are leaving, and it continues to collect a regular monthly payment, sometimes for years.
Only when Yoaz Hendel became minister of communications did the matter start to be treated with urgency, after repeated warnings by "Globes" of the extent of the phenomenon. As it happens, Hendel began to tackle the issue after he was burnt himself: he discovered that he was paying one of the ISPs without being a subscriber.
There are few companies that would deal with something like the double subscribers without being prodded. There is room for criticism of the management of Alpha for not dealing with the matter earlier. The problem has been well known for some time. Still, given the state of the telecommunications market, a company is unlikely to shed voluntarily hundreds of millions of shekels if it isn't obliged to. But why was it necessary to wait for the Ministry of Communications' intervention, when the writing was on the wall for several quarters. The problem exists in several companies, but the extent of it at Bezeq International raises questions.
Alongside the criticism, it must be stressed that the company has acknowledged responsibility for the matter. Bezeq's subsidiaries have stagnated and are fighting hard for survival, and they have no option but to streamline. The coronavirus pandemic will hit the shortly to be released third quarter results hard, and so there is no avoiding further streamlining, and Alpha head Ran Guron has contingency plans.
Bezeq - past lessons forgotten?
At Bezeq, which bears the scars of past affairs, a great deal has been invested in control and supervisory systems in order to prevent improper conduct and management failures. Outgoing chairman Shlomo Rodav, who was also chairman of Bezeq International, claimed that the companies had been cleansed of all their bad ways. The facts show that the truth is quite otherwise. Bezeq employs SOX compliance procedures in conformity with the 2002 Sarbanes-Oxley Act in the US, the aim of which is to ensure that events like this won't happen. Yet once again we are seeing failure of the control systems, of the auditors, or the management, and of the board of directors' audit committee and finance committee. As though all the lessons of the past had been forgotten.
How does it happen that the management and board wake up one morning and reach the conclusion that the company is worth NIS 200-300 million, almost have its valuation, less than it was worth the day before (Bezeq International is on Bezeq's books at a value of NIS 650 million). Former senior managers at Bezeq International claim that the facts have been known for a long time, and from the moment that the story hit the headlines, efforts were made to wake up the dormant subscribers, efforts that apparently were only partly fruitful.
Selection of directors - the institutions bear responsibility
The question now is, what about compensation? Will the company recompense those of its customers that have been paying for Internet for a long time without receiving service. As far as is known, that is not on the agenda at the moment. The company has on its own initiative been contacting such customers, informing them that they are not using its Internet service, and attempting to win them back. But what it fails to do, the class action lawsuits will do. In the end, some kind of compensation will presumably be paid.
But before all the blame is laid at the Bezeq group's door, it should be pointed out that it starts much earlier, and also lies with the financial institutions and shareholders that appoint the directors of Bezeq and its subsidiaries. Sometimes, some of them lack any experience in telecommunications. This problem, incidentally, is not unique to Bezeq, and other telecommunications companies also suffer from it.
Ministry of Communications - officials need to do some soul searching
This event also needs to prompt some soul searching at the Ministry of Communications. With all due respect to Hendel and the director general of his ministry Liran Avisar Ben-Horin, the ministry's officials failed. Their job is to supervise the market and prevent illegitimate conduct like this. And that's not all. There are also regulatory failures that have yet to be dealt with that "Globes" has written about, among them: mobile roaming services, the cost of which is negligible but the prices of which are sky high; international calls, often a hunting ground for occasional customers; and mobile connectivity charges that have not been revised since 2014.
Response of the Ministry of Communications: "The ministry has marked out the phenomenon of the double subscribers as a consumer wrong and as a target, and we shall act with determination until all the companies have halted this indecent practice."
Response of Bezeq International: "The company has received the regulator's communication on the matter and will act accordingly."
Published by Globes, Israel business news - en.globes.co.il - on November 2, 2020
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