The surprising idea raised last week by Shmuel Dankner, the controlling shareholder in the Matav cable television company, to merge the company with the Yes satellite broadcasting company, was immediately criticized and delegitimized. Apart from the men behind the idea, it seems that all those involved in the telecommunications market are trying to kill the initiative before it undergoes any public scrutiny.
No wonder, after three years of feeding us that the only way to compete on the Israeli telecommunications market was via a merger of the three cable companies ¿ the idea of merging the satellite company with the smallest cable company looks like heresy.
In light of the Communications Ministry's failure to open the domestic communications market to competition, however, Dankner's proposal is perhaps worth examining seriously. If we have learned anything from the failure to open the domestic telephony market, it is that economics are stronger than all of the regulators, and regulatory decisions lacking any economic logic are doomed to failure.
1. A merger between Matav and Yes is the only solution raised so far to a problem that few are willing to admit, but that no one doubts exists: Yes is liable to die. Despite the optimistic and fighting spirit of its new CEO, Shlomo Liran, the company's board of directors has its doubts about the company's future.
It is hard to foresee the day when Yes will start showing a profit, and even harder to see return on the vast investments. The main reason that Yes continues to operate is that it has one very big shareholder that, not incidentally, is a state-owned monopoly which sees Yes as a strategic investment and is willing to infuse it with funds. This, however, is a sure recipe for big trouble later on ¿ if the business itself does not become profitable, and if its only contribution is the damage it does to Bezeq¿s competitors.
2. A merger between Matav and Yes will prevent the latter from becoming a subsidiary of Bezeq, which everyone knows is Yes¿s current path. Bezeq already owns 45% of Yes and it's only a matter of time till it crosses the 50% mark.
In the current situation, the regulator has no real way of limiting Bezeq's holdings in Yes because without Bezeq there is a real fear that there will be no Yes. If the satellite company merges with Matav, it will become a competitor with a much greater chance of raising capital from private investors and from the banking system, facilitating the dilution of Bezeq¿s holdings to 20% or less.
The Yes-Matav group, unlike Yes under Bezeq, will become an independent entity controlled by a coalition of private concerns, rather than a weak player influenced by its largest shareholder's strategy and battles.
3. A merger between Matav and Yes is likely to improve competition in the content market ¿ which the anti-trust commissioner has been trying unsuccessfully to accomplish via conditions for the cable company merger. As part of the merger between Matav and Yes, the former would have to sell its share of ICP, the cable content company, and break off the "must sell" arrangement, which forces the cable companies to sell their channels to Yes. The merger could pave the path to the creation of two strong forces that would compete with one another not only for the purchase of imported movies but for all content.
4. A merger between Matav and Yes would be approved only if Matav promises to open its infrastructure in its franchise territory to the Tevel-Golden Channels group in order to facilitate multi-channel services, high-speed Internet and telephony. Such an agreement would accelerate competition based on unbundling in the Israeli telecommunications market.
As everyone knows, Bezeq is struggling against opening its infrastructure to other competitors because it fears this is the most effective means to create telephony competition. This is precisely why unbundling must be forced on Bezeq.
A merger between Matav and Yes could serve as the first stage in a strategic change in the communications market from competition between infrastructures to competition between operators.
5. A merger between Matav and Yes would ensure real competition among multi-channel providers and would likely lay the foundations for competition based on open infrastructures in the telephone market. A merger between the cable companies, on the other hand, would perpetuate the existence of Yes and its competition with the cable companies thanks only to Bezeq¿s desire to ward off potential competitors.
Ever since Communications Minister Reuven Rivlin took office, he has been juggling the interests of Bezeq employees with those of the tycoons. The Matav-Yes merger is his first opportunity to put his stamp on the industry and to create a competitive communications market for the long term.