Bezeq must forfeit corporate clients in the interests of competition

23 Aug 2004

Majority state-owned PTO Bezeq has confirmed that the Israeli Ministry of Communications has ordered it to terminate a number of its corporate customer contracts because they contravene the terms of its licence. In its second quarter financial report, the incumbent confirmed press speculation that it was to jettison the business clients and that the Ministry had forbidden it from signing new agreements in the interests of making the market more competitive. It is not yet known exactly how the contracts violated the incumbent’s remit or how many customers it will lose because of the ruling, but as much as 25% of the telco’s fixed line subscriber base are corporate clients.

Whilst competition in the international calls market is thriving, Bezeq still holds a de facto monopoly on the local market despite repeated attempts to introduce competition. Liberalisation of the fixed line sector has actually been under way for a number of years but only limited progress has been made. Technically, Bezeq lost its exclusivity on 1 June 1999 following an amendment to the telecoms law four months earlier, however, early interest shown by foreign players waned as the global downturn in the telecoms industry began to bite and even the country’s three cable TV operators – Matav, Golden Channels and Tevel – showed diminishing interest in offering telephony services as time progressed, instead focusing their attention on the digital television market.

Meanwhile, one of the potential investors seeking to buy a stake in Bezeq has criticised the country’s regulators for attempting to block the deal. Israel Corp – which has invested in a number of former state companies in the chemical, shipping, oil and energy industries – is upset that government is insisting that any company taking control of Bezeq must also assume the telco’s significant banking debts. The group is gearing up to bid for controlling interest in Bezeq following the relaxation of ownership regulations which have repeatedly prevented full privatisation of the telco since 1998, but says that no sale will take place until the numerous state bodies overseeing the sale can agree on its terms and conditions. ‘Under current circumstances, no Israeli company could take over Bezeq, because it will harm its other businesses,’ said Israel Corp CEO Yossi Rosen.

In the three months to 30 June Bezeq’s net profit jumped to ILS106.3 million (USD23.5 million), from ILS19 million twelve months earlier, mainly due to a significant decline in depreciation costs, affected by a change in accounting practices. Domestic telephony revenues grew 10% year-on-year to ILS582 million, though the bulk of revenue growth came from the group’s investments in cellco Pelephone and satellite broadcaster YES; total group turnover was up 2.8% to ILS2.01 billion.

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