Telecom competition stakes raised

Analysts still expect regulators to make the biggest impact on the market in 2007.

yes satellite dish 298.8 (photo credit: Ariel Jerozolimski)
yes satellite dish 298.8
(photo credit: Ariel Jerozolimski)
As cable company HOT battles it out with Bezeq and its subsidiaries in the telephone, television and Internet arenas, analysts still expect regulators to make the biggest impact on the market in 2007. Indeed, regulators started the year off actively, denying a request by Bezeq to increase its YES holding. "Competition will continue and intensify but much depends on the regulators and whether the Communications Ministry continues to give preferences to HOT," said Miko Mor, telecommunications analyst at Gaon Investment House. Following the privatization of Bezeq in 2004, government regulators placed limitations on the company in an attempt to open the market to competition until its market share drops below 85 percent. Richard Gussow, an analyst at Excellence Nessuah, noted that the most notable restraint placed on Bezeq involves its inability to offer bundled packages to customers. Bezeq's biggest competitor HOT introduced the tripleplay concept to the market for the first time last year offering telephone, TV and Internet services in one transaction to customers. HOT's ability to attract customers is expected to strengthen this year after the company said Monday that the merger between the three companies that make up HOT was completed. The deal saw Matav Cable Systems Media acquire Tevel Israel International Communications and Golden Channels, which will allow HOT to lower costs and strengthen its financial position. Meanwhile, the regulators again placed constraints on Bezeq Monday when the Antitrust Authority blocked the company from increasing its stake in its satellite television unit Yes from 50% to 58% . "Allowing [Bezeq to increase its stake in Yes] would significantly hurt competition and consumers in the multi-TV market," the Antitrust Authority said, citing Bezeq's ability to provide video-on-demand (VOD) through its Internet infrastructure as the prime reason for preventing the share increase. While HOT is currently the only company with the ability to offer VOD services, the government is attempting to open the VOD market with caution. Communications Minister Ariel Attias this week said he has presented a draft proposal to give Yes an experimental license to provide the service via the Internet to 10,000 subscribers. "The ministry is in a bit of a bind because on the one hand they want to promote competition in the multichannel TV sector, which means they should be promoting Yes and trying to help it compete with HOT," Gussow explained. "On the other hand, they are limiting Bezeq, which owns 50% of Yes, and therefore they won't allow Yes to bundle services." Since the satellite technology on its own doesn't allow for VOD, Gussow added, the only way to allow Yes the service would be by combining it with Internet, which means that Yes would have to join forces with Bezeq International. Bezeq will also have its eye on Internet providers and cellular companies in 2007 some of which also received licenses to compete with it in the fixed-line telephone market and with it the possibility of bundling services in the future. "I think everyone is going to get into it but the biggest competitor is going to be the IDB group, which has Cellcom and Netvision. We will see bundled services from them," Gussow said. He added that a possible joint venture between HOT and the IDB Group could be a possibility in the future. Internet companies Internet Gold and 012 Golden Lines also said Monday they had completed their merger. The first threshold for the industry, however, will be to break the Bezeq monopoly. And while Gaon's Mor said he doesn't expect the company to get clearance to bundle its services this year, Excellence Nessuah's Gussow believes 2007 may well be the year when the 15% mark is cleared. "We still don't know how the Communications Ministry has defined the 15%, because it could be revenues, subscribers etc., but it is probable that Bezeq will lose it during the course of this year," Gussow said. "Overall once we get to that threshold, the competition is going to ramp up markedly."