Don¿t even try to understand from this morning¿s complicated financial news stories what happened yesterday in the Knesset Finance Committee. The long, complex items mention franchises, and licenses, and cross-ownership, and lead legislation, and the Economic Arrangements Law, first and second readings, and a long list of legislative procedures and financial and legal terminology.
You only need to understand one thing that Enron investors learned the hard way three months ago. If something is complicated, it is not a coincidence. Complexity serves someone¿s purposes, someone who doesn¿t want you to know what¿s going on there. The complexity is a smoke screen hiding the MKs, members of the Finance Committee and Communications Ministry officials as they hand over to the tycoons perpetual license to control commercial television in Israel.
Committee chair Avraham Poraz gleefully announced that his position is that the commercial television sector should be transferred from a franchise system to a license system.
Sound good? Why, yes. There is just one small matter: today there are three companies with franchises for commercial television ¿ Reshet, Keshet, and Tel-Ad ¿ and they belong to the publishers of three of Israel¿s four most influential newspapers.
According to the terms of the franchises those companies received, they were to broadcast until the end of 2003, when they were to return the franchises to the state, count their profits, and go home, or at least make competitive bids for the next franchise period.
But those three companies have the richest, most powerful shareholders in the country, who have scores of lobbyists and an arsenal of lawyers, but most importantly, they have lots of friends on various Knesset committees.
Therefore, what looms from the conclusion of yesterday¿s debate is not just the transition from franchises to licenses, but cancellation of the need for a tender. In other words, Reshet, Keshet, and Tel-Ad, whose franchises should have ended at the end of 2003, will be given perpetual licenses to control Channel Two together.
Finance Committee unperturbed by Channel 10
It is interesting what happened to Poraz over the past few months. Just five months ago he explained in a meeting of the same committee that he opposed the license system and the extension of the Channel 2 companies franchise periods. He explained that a new tender was needed. He listened attentively to Channel 10 representatives¿ arguments that if the Channel 2 franchises were extended, the chances a third channel could compete were next to nil because of the monopolistic assets accrued by the three existing players.
It is not clear what happened to Poraz, but what happened in the television sector is very well known. The new commercial channel, Channel 10, began to broadcast last month and it became evident almost immediately that competing with the existing monopoly would be much harder and more expensive than anyone had guessed. Efforts to compete with three companies that have held a monopoly for eight years have proven very expensive and the ability of Channel 10 shareholders to finance it until profitability is now in question.
Logic would have it that the committee would convene an urgent meeting to consider what can be done to prevent the closure of the new channel and how conditions can be created that will allow commercial television sector competition in Israel.
But members of the Knesset Finance Committee and Communications Ministry officials are not worried about the fact the new channel could close in under two months. They are much more concerned with aiding and abetting the existing monopoly, the Channel 2 franchisees.
The franchisees representatives ¿ CEOs, shareholders, lawyers, and lobbyists ¿ have whined consistently to the Finance Committee over the past several months about the financial damage they will suffer with the end of the franchises. This complaint is very odd: of course they will be caused financial damage ¿ that is the whole idea behind a time-limited franchise. When the franchise period ends, the value of the asset shrinks nearly to zero and all you can do is compete anew for the franchise with the knowledge that you may win or you may lose.
But behind the Channel 2 franchisees¿ cries there is very clear logic: as far as they are concerned, the time-limited franchise is fake. As far as they are concerned, the time-limit is only theoretical, legislative. In real life, it is perfectly clear to them that when their time is up, their friends in power will renew it for them. That is how it worked for the cable companies, that is how it will work for the oil refineries, that is how it works for any franchise where the players are powerful enough ¿ and that is how it will work for Channel 2.
Until yesterday¿s debate in the Knesset Finance Committee, many believed Poraz, a long-time parliamentarian, would not let Channel 2¿s representatives steal the endless extension from the state behind the smoke screen they had created. Yesterday it became clear that Poraz is also tired of their constant bulldozers and he is willing to take a quick compromise in which Channel 2 shareholders get exactly what they wanted and planned on all along ¿ a license to kill competition.