Allmost: Cellcom acquires Golan Telecom - the competition authority approves the deal

Two days after the Treasury announced that it was not opposed to the acquisition of Golan Telecom by Cellcom, the competition authority announced on Wednesday that it was approving the deal, three months since it was opened. In 2016, the authority objected to a similar purchase request for fear of damaging the competition. Now, the Ministry of Communications' final approval is required, but it is also likely to see eye to eye with the other regulators.
The merged Cellcom will actually return to pre-cellular reform days in 2012 with a 35% market share, which is about 3.7 million subscribers, 930,000 of which are in Golan. One of the possibilities is that Cellcom will retain the Golan Telecom brand, which also enjoys a good reputation among the public, leaving it as a separate and independent subsidiary. By comparison, Partner will hold a 26% market share and Pelephone a 23% market share. The regulator believes that the different size of the actresses keeps a constant incentive for the medium and small companies to grow and bite into the big player market share.
Cellcom acquires Golan for NIS 650 million, and after giving Golan a loan of NIS 130 million, the value of the deal will be NIS 780 million. Cellcom sought to acquire Golan in 2016 worth no less than NIS 1.7 billion, effectively cutting Golan's value by more than half in four years, indicating the low value it attributes to Golan as a competition generator. Although the purchase price is significantly lower than 2016, Cellcom's situation is problematic due to a net debt of NIS 1.9 billion.
Cellcom has a network sharing agreement with Golan, in which Golan pays NIS 210-220 million a year. Golan's acquisition is actually an insurance certificate for Cellcom, as it could leave Cellcom at the end of the agreement between them in 2027. In addition, Cellcom is now increasing its mobile client base by about 930,000 subscriptions and its annual revenue by NIS 300 million, but remains with the same cost structure and current workforce - only about 250 employees in the Golan compared to about 3,500 for Cellcom. In addition, Cellcom will be able to offer its new customers triple and quatro packages that include Internet, TV, telephony and cellular phones.
"The cellular market is one of the most competitive markets in Israel," points out the competition director, Michal Halperin, at the PA's position. "The merger examination has revealed that the cellular market is a market where competition has been stepped up and is characterized by low transit and expansion barriers, and the number of crossings between the various companies is high and stands at about two million crossings a year." In comparison, the number of crossings in 2016 was 1.8 million.
The Authority's review also addressed concerns about rising prices after the merger, concluding that the Israeli cellular market will remain competitive, too: Another aspect that has been examined is the effect of the merger on the network sharing agreement between Cellcom, Golan and Expon (which operates the we4G brand), and specifically whether the merger will impose additional costs on Exponon that will push it out of the market: And in the competitive incentive. "
"Since 2016, when the Commissioner objected to the merger, there have been changes in the market, the most prominent of which is as stated by Expon's entry into the market in 2018 and being a generator of competition," the Commissioner notes. "Integrating New Competitor Entry with Market Competition Enhancement - Decrease Monthly Revenue Rate for Cellular Carriers (ARPUs) from 47.3 in 2016 to 34.8 in 2020; Increase in Transitions Between Cellular Companies and Virtual Operators' Strengths Lead to Strong Competition and Lead This Time For a decision to approve the merger. "
The Commissioner noted: "The fact that in 2020 a merger between two cellular companies can be approved is a result of the favorable changes in the market and the implementation of competitive behavior patterns in it. The market structure and successful competitive reforms promoted by the Ministry of Communications (cancellation of the commitment period, number mobility and route simplification) have created the Israeli consumer. A competitive market that offers him a range of offers at equal prices for everyone. "
The position presented by the Authority, as well as the Treasury's position, does not describe any advantage inherent in the merger between Cellcom and the Golan, and in fact does not contradict it in light of the fact that it is simply harmless. The regulator is actually based on the fact that the free market has a willing buyer, a willing seller and a deal, and there is no reason not to approve unless there is a market failure.
The concern is that Cellcom will have to raise prices, albeit moderately, in order to finance the cost of the transaction soon. The position among regulators is not to be feared, as they believe that the small companies, Hot Mobil and Exxon we4G, along with virtual operators such as Remy Levy and 201 Mobil, will continue to offer low market prices to increase their share. Already today, the low price level offered by Golan (about NIS 35 per month) is not dictated by it alone, and more specifically by HOT Mobile (NIS 30) and Expon (NIS 28).