Cellcom Emerges as Top Suitor to Salvage Israeli Fiber Firm

(Bloomberg) -- Cellcom Israel Ltd. has emerged as the leading contender for an investment that the government hopes will turn a failing fiber-optic network into one that could rival the country’s biggest broadband providers.

The nation’s largest mobile-phone operator is among suitors weighing a cash infusion of about 1 billion shekels ($274 million) into Israel Broadband Co. Ltd., the Ministry of Communications said in an emailed response to questions. The investment is aimed at expanding the reach of IBC’s network to as much as 40 percent of the country and would give the winning bidder a 60 percent stake currently held by a consortium of investors, it said.

IBC has struggled to gain traction since deploying a high-speed internet network in 2014 even after being touted as the upstart that would balance out a market dominated by Bezeq Israeli Telecommunication Corp. and Hot Telecommunication System. Instead, the government lost about 150 million shekels of its investment in IBC and the market remains a duopoly.

Representatives for Cellcom and IBC didn’t immediately reply to requests for comment.

Breathing new life into IBC, of which the state-owned utility Israel Electric Corp. owns the remaining 40 percent, will give a boost to Israel’s high-speed internet market, where subscriptions rank among the lowest in Organisation for Economic Co-operation and Development countries. Bezeq will begin connecting buildings to its fiber optic network next month after a dispute with regulators caused it to hold off, the ministry said.

Regulatory Approval

IBC, which hired Rothschild to advise its search for a strategic partner, originally sought an investor that would help expand its nascent network across the entire country. The ministry reduced that requirement, now offering a grace period of three years to the newly reconfigured IBC to choose where to deploy its cables. Afterwards, IBC will be required to match new areas with places the ministry chooses, with a special emphasis on the country’s periphery.

Any tie-up is subject to regulatory approval from Israel’s Ministry of Communications, which summoned Cellcom and rival telecoms firm Partner Communications Co. Ltd. to a hearing. The ministry expects to reach an agreement with one of the companies within the next few months, it said.

Price War

The bid to reinvigorate IBC is part of the ministry’s overall policy to lower costs for consumers, following similar steps in the mobile-phone sector.

Profits from Israeli cellular services nosedived after the government passed reforms in 2010 that opened the sector to competition, sparking a years-long price war. For its part, Cellcom is seeking to diversify its services in search of new growth avenues.

The company raised 280 million shekels and up to 120 million shekels more in options last week, funds that could be used for a partnership with IBC, Roni Biron, the co-head of equity research at at Excellence Nessuah Brokerage, said in an emailed note.

Cellcom’s shares rose 0.3 percent in Tel Aviv on Wednesday, paring losses this year to 44 percent.

To contact the reporter on this story: Yaacov Benmeleh in Tel Aviv at ybenmeleh@bloomberg.net

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Vernon Wessels, Ross Larsen

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