Israeli Cable Operators Agree to Merger


Tel Aviv, Israel -- The wave of cable-industry
consolidation could hit this country, with two of its three MSOs agreeing in principle to
merge their operations.

Eliezer Fishman, who owns 25 percent of MSO Golden
Channels, said that operator has agreed in principle to merge with Tevel Israel
International Communications Ltd., an MSO owned by acquisition-minded United Pan-Europe
Communications N.V. (UPC).

The agreement follows a decision by direct-to-home
satellite-license winner Israel Digital Broadcasting Co. to put any commercial plans on

Fishman is proposing that all three of Israel's cable
operators merge. In that case, Golden Channels and Tevel would join with Matav Cable
Systems Media Ltd., which analysts at investment bank Robert Flemming described as "a
candidate for acquisition."

The Golden Channels-Tevel agreement calls for Tevel to buy
most of Golden Channels and for the two companies to attempt to acquire Matav.

Prices of between $1,800 and $2,000 per subscriber have
been discussed. Golden Channels has 420,000 subscribers, Matav has 260,000 and Tevel has

Tevel, however, has made it clear that it is interested
only in buying, and not selling.

Israeli antitrust commissioner David Tadmor has indicated
that he would not block the merger, and the Cable and Satellite Broadcasting Council is
likely to approve the move provided that the companies agree to function solely as a
carrier and to relinquish their content ownership.

Eli Nissan, senior media consultant at the Israel
Broadcasting Regulatory Administration, said the proposed merger will have less of an
effect on the country's cable-DTH rivalry than it will on competition between cable and
telephone company Bezeq.

The telco recently lost its monopoly on telephony services,
clearing the way for cable to provide phone and high-speed-data services. Only a cable
operator with a national reach could provide competition for Bezeq in this area.

Holding up a merger is Golden Channel's part-ownership by
newspaper Yediot Achronot, which competes with fellow newspaper Ma'ariv. Ma'ariv
owns part of Matav, and neither paper wants to lose its stake in the cable industry.

Fishman and the cable companies refused to comment on the
proposed merger.

Eitan Robb, managing director of DBS Satellite Services --
which has won a DTH license, and which is pursuing a commercial launch -- reacted strongly
to the discussions.

"For 10 years, the cable monopoly has hidden behind a
phony mask of several companies, but today, the mask has finally been removed. They
started as five companies and shrunk to three, and today, they want to openly be one
company and be a monopoly," Robb said in a prepared statement. "The cable
companies are trying to prevent the arrival of competition."

Meanwhile, IDBC is contesting in court the Communications
Ministry's refusal to further postpone its license-payment due date. The company wants to
hold out because of uncertainty regarding the cable market.