Dismissed Director General Avi Berger

What happend?

 

PM Benjamin Netanyahu has decided to remain in charge of the Ministry of Comm in the new govt. Likud member Ofir Akunis was designated as a second minister in the office but his status and responsibilities are not yet clear. We believe the context for this decision likely relates to the delicate issues around Channel 10 and Israel Today. In a somewhat surprising move, Mr Netanyahu dismissed Director General Avi Berger, who was responsible for sending off a challenging wholesale market reform in fixed-line only three months ago. According to Globes, Mr Berger's replacement is likely to be a political appointment.

Our take

Over the past six months the MoC and Bezeq have been on a collision path over the subject of wholesale telephony. This has gravitated to high court petition, potential fines, and negative headlines, side-lining key regulatory approvals (YES transaction, structural separation). While too early to predict, the latest turn of events may open the door for a more constructive dialog on the key issues. The main upside for Bezeq in such a scenario would be clearer criteria for ending its structural separation. For the mobile companies, Mr Berger's uncompromising stance with Bezeq on the wholesale front has been positive and the risk is looser scrutiny over the process. Other outstanding issues are HOT's engagement in the wholesale market and mobile regulation.

Pricing pressures emerge in fixed

Over the past week we have seen price competition emerging in fixed-line ahead of the 17 May deadline for automated wholesale. This includes Cellcom's aggressive 3-play launch for NIS149-169/mth, Xfone's broadband promotion (100Mbps + ISP) for NIS69/mth, and Bezeq's reverse bundle for NIS120/mth. As the wholesale market shifts into a higher gear and other players launch 3-play (Golan, Partner), we believe regulation will become key in offsetting headwinds for the three incumbents.

Valuation: Remain Neutral

We base our PTs on DCF, applying a 10% discount to Partner and Cellcom due to low visibility. To consider turning more constructive, more conviction would be needed on key regulatory catalysts.