PYRAMID RESEARCH Africa/Middle East Perspective
A long series of delays and snags finally ran its course Tuesday, November 13, as Israel's Government Companies Authority (GCA) announced intentions to sell off 50.1 percent of Bezeq, the state telco.
Contrary to news reports, the announcement is not a tender but rather an offer of a sale procedure package costing 10,000 New Israeli Shqalim ($2,373), for which parties have 90 days to place a bid.
The sale process is slated to span a minimum of six months. Restrictions on eligible investors were also eased somewhat in light of global economic conditions, to allow for financial investors from Israel or abroad as well as strategic investors from the telecommunications industry.
News of the impending sale helped give Bezeq's share value a boost of nearly 20 percent over the past four days, from NIS 4.6 ($1.09) to NIS 5.5 ($1.30). Bezeq and GCA executives are working with Merrill Lynch to organize a road show presenting Bezeq in various financial capitals, to begin in about a month.
THE PYRAMID PERSPECTIVE
A would-be fixed competitor disbands, enhancing Bezeq's allure …
• Bezeq's stock value climbed this week due in part to another significant Israeli telecoms development, which strengthened the company's value proposition. Ofek, the country's second fixed operator licensee, closed its doors Sunday after its tentative partnership with mobile operator Cellcom disbanded.
• Bezeq has evolved into a family of strategic business units and subsidiaries dominating or competing in most telecoms sub-sectors, but its main source of revenues remains fixed telephony. The departure of Ofek and the inability of cable companies to mount a challenge leave Bezeq the de facto monopoly in fixed telephony, with the exception of the international long-distance market. Bezeq will dominate the sub-sector for the foreseeable future—promising news indeed for a company that earned 54 percent of its revenues last year from
fixed fees and domestic tariffs.
EXHIBIT 1 Israel's Fixed Telephony Revenues, 1999-2006
• Although the communications ministry has shown signs of encouraging the cable companies to merge and compete with Bezeq in fixed telephony, prospects for such a venture remain distant. YES, the Bezeq-owned satellite television broadcast company, is competing successfully for cable audiences, tying up cable company resources in projects to digitize their networks. Legal and regulatory entanglements meanwhile stand in the way of a cable merger.
… But the impending sell-off of a Cellcom stake will compete for investors
• Cellcom's withdrawal from a partnership with Ofek stems in part from the disinterest of BellSouth, a major investor in Cellcom, in a long-term entanglement with fixed operations in Israel. BellSouth seeks to sell off its stake in Cellcom, which holds the largest market share of Israel's three mobile operators. The sell-off will pose another attractive opportunity to local and other telecoms investors.
Joseph Braude, Pyramid Research
This Perspective provides Pyramid’s view on a significant development in the communications industry. Perspectives are a component of Pyramid’s Advisory Services.
© 2001 The Economist Intelligence Unit Ltd. All rights reserved. Pyramid Research is a division of the Economist Intelligence Unit
© 2001 Mena Report (www.menareport.com)
