Partner in talks to invest in Hot

Patrick Drahi
Patrick Drahi

Hot Telecom is looking for a strategic partner to invest in deploying a fiber optic network.

Israeli telco Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) is in initial talks to invest in rival Israeli telco Hot Telecommunication Systems Ltd. (TASE: HOT). As previously reported by "Globes," Hot's parent company, Altice controlled by French-Israeli billionaire Patrick Drahi, is seeking strategic telco partners in France, Portugal and Israel.

In France, Altice has already formed a strategic partnership with sister company SFR, for the purposes of laying fiber optic cables. In Israel, Hot also has to undertake the very expensive business of laying a fiber optic infrastructure, if it wants to remain a major player in Israel's telecom market.

"Globes" has also learned that at the start of 2018, there were already talks between Partner's parent company the Saban Group and Altice about acquiring Hot. However, it is understood that the differences in the price being offered were very large and the talks broke down. On the other hand Partner and Hot already have a network merging agreement, which could provide a framework for future collaboration on a fiber optic network.

While Hot is struggling to upgrade its infrastructure and network, Partner is already pouring major investments into deploying a fiber optic network in a range of cities around Israel. Partner's strategy is not to continue acquiring infrastructure services from Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) as part of the wholesale market but to offer its own infrastructure. Bezeq has a fiber optic network covering 60% of the country but is yet to operate it. So Partner can offer a unique, advanced product to customers of Internet with speeds of 1 gigabyte per second.

On the other hand, Hot finds itself in a very sensitive position in Israel's telecom market. Above and beyond, Altice's need to service the debt that is weighing it down, Hot requires very major investment in order to lay a fiber optic infrastructure, in a market that is intensively competitive and where profitability has been eroded. In such a situation it is highly unlikely that Hot has the necessary investment funds, and it must urgently find a solution. This makes the sale of part of its activities are some sort of merger as the most likely option.

If the talks with Partner do not bear fruit, then Altice is likely to turn to other companies that would be interested to invest in Hot Telecom. It seems less realistic that an international company would be interested in investing in Hot Telecom.

Any deal between Partner and Hot will require approval by the Israel Antitrust Authority. As Partner is a rival already working in the fiber optic sector, the regulator will have good reason to object to such a deal. On the other hand, the benefits for the overall market by strengthening one of the players could override any objections and lead to approval.

Both Hot and Partner declined to comment on this report.

Published by Globes, Israel business news - en.globes.co.il - on December 17, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Patrick Drahi
Patrick Drahi
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