Apr 14, 2016 07:11 AM EDT
Cellcom Israel Ltd on Tuesday announced that its plan to acquire Golan Telecom is opposed by regulators. Ministry of Communications along with Israeli Antitrust commissioner have said their disapproval of the deal.
Cellcom, the largest telecommunication company in Israel, stated last November to acquire rival company Golan Telecom for for 1.17 billion shekels ($305 million). In fear of reduced competition, the acquisition deal has faced opposition from politicians and regulatory barrier as well as the combined company would control 40% of market.
Analyst at Psagot Investment Ilanit Sherf told Jerusalem Post that Antitrust Authority cannot approve the deal in its current format. The merger will harm the competition in the telecommunication sector. Therefore Cellcom must provide necessary changes to ensure current market structure stay intact.
"In the longer term we find it difficult to see the continued existence of the current market structure," Sherf said. "Imbalances and prices currently in the market will not remain with us forever."
On the other hand, Golan Telecom said the authority;s decision to block the deal is a breach to international standard. As regulators in many countries have allowed the merger that reduce the players in a certain sector.
"A decision against approving the deal would signal to foreign investors that Israel does not respect the rules of conduct and OECD standards," Golan Telecom said.
Citi analyst Michael Klahr as quoted by Reuters also noted that Israel regulators and politicians have already stated to keep the telecommunication sector to remain a five player market. The fair scenario he said is Golan to sell the company to a third party that will invest in building network.
Another possible option to maintain five-player market in Israeli telecommunication sector is to allow Golan and Cellcom forming partnership, just like what Partner Communication and Hot Mobile did. Such partnership should be forged based on the conditions set by the Ministry of Communications.
"We continue to see high levels of competitive intensity in Israeli mobile for the foreseeable future," said Klahr.
Currently the mobile network operators in Israel telecommunication sector are Cellcom, Partner Communication, Pelephone, Golan Telecom and Hot Mobile. Cellcom is the largest provider with 2.835 million subscribers or around 35% as December 2015. Its close rival is Partner with 32% market share and Pelephone with around 28% market share.
Arutz Sheva reported that merger plan between Cellcom and Golan Telecom raised competitive concern with regards to the cellular phone industry. However, Antitrust Authority will invite representatives from both companies in a hearing with the possibility to approve the merger. While final decision regarding the deal will be made next week.
Antitrust Authority and Ministry of Communication have stated their stance to opppose the merger between Cellcom and Golan Telecom. Still, Antitrust Authority will invite the company's representative in the hearing to discuss the deal before making final decision.
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