The Ministry of Communications has published the economic study on the basis of which it decided to approve the merger between Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) and Golan Telecom. The document concludes that the merger will not have a dramatic effect on competition in the mobile telephony market. The companies that are generating competition are not part of the merger; concentration in the mobile market in itself, in relation to other telecommunications markets in Israel, and on a global comparison, is at a medium level, and will not change substantially.
The study finds that the merger could even contribute to competition: it will for the first time break the symmetry between the three veteran companies in the market (Cellcom, Pelephone and Partner) and facilitate better investment, enabling the market to reach a better equilibrium between competition on price and competition on technology.
The study also comments on the tender for 5G frequencies which closed last week. "We believe that the policy that incentivizes investment that the ministry has adopted in the tender, while price competition is established and stable, can reduce fears of the consequences of the merger from the point of view of the investment required in the industry, and can be a further factor in bringing the mobile market to a better equilibrium."
The study also states, "One of the reasons for Israel's decline in comparative measures is the low degree of technological competition. Although all the carriers have met the milestones for network deployment stipulated in their licenses, most of them have not exceeded their obligations. Furthermore, 4G service is not yet fully provided in Israel. The use of advanced versions of 4G - support for Voice over LTE and implementation of carrier aggregation - is only at the start.
"In a healthy competitive environment, companies have an incentive to carry out technological improvements, in order to offer better service to the consumer and thereby obtain higher revenue. As mentioned, competition has significantly reduced the total level of revenue in the market, and has cut the companies' surplus profits, but it has not manifested itself in improved service on a technological level.
"Furthermore, the data show that the current structure of the market does not provide an incentive to compete on technology. We stress that Israel's position in technological metrics was already low in 2016, when Israel was a long way behind the most advanced countries, but the past few years, particularly last year, have seen rapid deterioration in technological metrics towards those of third world countries."
Published by Globes, Israel business news - en.globes.co.il - on August 19, 2020
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