Photographer: Ariel Jerozolimski/Bloomberg

French Billionaires Strike Again in Israel’s Telecom Market

  • Hot-Golan deal will extend competition among rivals: Leader
  • Cellcom and Partner lead plunge in telecommunication shares

Cellcom Israel Ltd., Israel’s largest mobile phone operator, is demanding that two competitors owned by French billionaires cancel a network-sharing deal, saying it violates an existing agreement Cellcom has with Golan Telecom Ltd.

Golan and Hot Telecommunication System Ltd. have signed a deal that, if approved, would heighten competition that has already depressed profits for their larger rivals. If the accord goes ahead, Cellcom will demand immediate payment of about 900 million shekels ($233 million), the company said in a statement filed to the Tel Aviv bourse. Cellcom shares slid the most on record.

Owned by Frenchmen Xavier Niel and Patrick Drahi respectively, Golan agreed to pay Hot for the use of its network over the next 10 years, according to a stock exchange filing on June 10. Hot will also provide financing for some of Golan’s debt. The accord is subject to regulatory approval.

The deal keeps Golan -- the most aggressive price cutter in the sector -- financially viable and removes some of the immediate pressure to sell to a competitor, Sabina Levy, an analyst at Leader in Tel Aviv, said in an e-mailed note.

Golan’s sale to Hot “badly surprised Cellcom which was certain that its exclusive agreement” and its large debts “would be a major obstacle preventing Golan from moving to another company,” Levy wrote.

The two Frenchmen burst onto Israel’s mobile market four years ago, sparking a price war that cut revenues for existing providers. Israel’s two biggest mobile operators, Cellcom and Partner Communications Co., have seen their sales decline every year since 2011. The loss of future revenues from Golan “will have a material adverse effect” on company performance, Cellcom said.

Golan’s rise was accompanied by growing liabilities of about 600 million shekels that threatened its survival, leading Niel to seek a buyer. The expectation that Cellcom would purchase Golan for 1.17 billion shekels, allowing companies to raise prices, sent investor optimism soaring. The deal failed to materialize because of objections from the regulator.

Cellcom shares fell 12 percent, the most on record, to 26.80 shekels at the close of trading in Tel Aviv. Partner dropped 6.1 percent, while Bezeq, which offers mobile services through its Pelephone unit, shed 1.3 percent to 7.15 shekels, the lowest since August.