Israel Is Said to Weigh Bezeq Spinoff to Improve Competition

(Bloomberg) -- The Israeli government is considering forcing the country’s largest telecom company to spin off its infrastructure assets to boost competition, according to two people with knowledge of the matter.

Prime Minister Benjamin Netanyahu’s office, the finance and telecommunications ministries and antitrust authority have started discussions about whether to separate Bezeq Israeli Telecommunication Corp. from its infrastructure holdings, said the people, who asked not to be identified as the talks are private. Bezeq shares fell.

Discussions are at an early stage and may not result in a deal, the people said. A spinoff is just one among several options being considered to boost competition in the country’s telecom sector, one of the people said.

Talk of a spinoff adds another layer of uncertainty to the sale of the majority stake in Bezeq. A group of investors, led by Israeli-American businessman Naty Saidoff, are reconsidering an agreement to buy the assets of Eurocom Group Ltd. -- which include 26 percent of Bezeq stock, worth 3.25 billion shekels ($927 million) -- after the telecom firm recently cut its dividend and pledged to overhaul its board of directors. Saidoff recently presented a new offer, according to Calcalist.

Representatives for the Finance Ministry and prime minister’s office declined to comment, and spokespeople for the antitrust authority were not immediately available. A spokesman for Bezeq said the company doesn’t comment on regulatory discussions.

Boosting Competition

Selling Bezeq’s telecom infrastructure, the country’s largest, could boost competition in an industry the company has dominated since it was privatized in 2005. The government has passed several reforms to level the playing field but Bezeq remains the most profitable provider by a wide margin, and has been accused of abusing its power to stifle rivals.

The antitrust authority has been investigating alleged Bezeq practices to block competitors from accessing its infrastructure, which would allow them to expand their nascent fiber optic networks.

Bezeq shares fell 1.6 percent on the news, and the “even further uncertainty surrounding ownership transition,” Saar Golan, a trader at Meitav DS Investments Ltd., said by email.

Shares of Bezeq rivals Cellcom Ltd. and Partner Communications Company Ltd. rose as much as 4.5 percent and 4.3 percent, respectively, before moderating. Cellcom was up 0.5 percent to 26.22 shekels at 3:43 p.m. in Tel Aviv, while Partner was up 1.9 percent.

“The mobile operators are seen as the main potential beneficiaries” of a spinoff, Golan said. “Initial optimism faded, likely on realization that such a move would take a lot of time.”

Competitor Gains

Still, some competitors are gaining market share in mobile, internet and fixed-line services as a result of government reforms, last year collecting 29 percent of profits in the sector, compared with 14 percent in 2016. That success is also due to investments made by competitors such as Cellcom and Partner toward building separate telecom infrastructure, which weakens the case for the spinoff, the person said.

Israel Is Said to Weigh Bezeq Spinoff to Improve Competition

Officials maintain there’s still room for flattening the competitive landscape, the person said.

That goal was the benchmark set by the communications ministry in order to cancel “structural separation.” That regulation prevents Bezeq from merging its operating units, a step that could save the company more than $100 million in yearly costs.

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