Pelephone Communications Ltd. and Xfone are very close to signing a network sharing agreement. Xfone, owned by Hezi Bezalel, acquired frequencies in the 4G frequencies tender in January, and since that time has been negotiating with Pelephone and Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) for a network sharing agreement. Xfone needs to operate through one of the veteran operators that has a nationally deployed cellular network.
The negotiations between Pelephone and Xfone have made great progress, due to the fact that Pelephone lost out to Partner in the race to win HOT Mobile Ltd. as a network sharing partner, and eventually purchased on 15 mega in the tender. From an engineering standpoint, an optimal 4G network needs 20 mega of bandwidth, and the right thing for both companies is therefore to establish a joint network under the Ministry of Communications plan for the establishment of three cellular networks in Israel designed to host all the operators. The third network belongs to Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), which is hosting Golan Telecom Ltd..
Bezalel hired former HOT Mobile CEO Yaakov Nadvorani to manage his communications business and promote his cellular project, and it is believed that Pelephone and Xfone are nearing agreement between them.
Many communications market sources find Bezalel's plans for entering the Israeli cellular market difficult to understand, to say the least. It is clear to no one what exactly Bezalel hopes to achieve in the market at such low prices, and the question arises of how it is possible to make a return on such a large investment of tens or hundreds of millions of shekels in unifying networks when the prices in the market are so low. Some believe that Bezalel is thinking in the long term in the belief that prices will rise, enabling him to make a profit on the project, while other hold that he is looking for a foothold in the communications market in order to expand his business by acquiring one of the market players. In any case, Bezalel's presence in the cellular market poses a problem for the other operators, because it means that the downward pressure on prices will remain strong under any possible scenario, given the close connection between the number of subscribers recruited and the bargains offered. Even if the number of subscribers switching operators is on a downtrend, the churn favors the companies with the lowest prices, such as Golan Telecom, HOT Mobile, Rami Levi, and Telzar 019. The parties declined to respond.
Pelephone acquired the subscribers of YouPhone several months ago, and will now receive additional revenue from Xphone. On the other hand, it is likely that this achievement will be offset by the competition from Xfone, so the overall results of the company entering the market will become clear only later.
Published by Globes [online], Israel business news - www.globes-online.com - on October 15, 2015
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