Israels Trio of Cable Operators Eyes Merger


Tel Aviv, Israel -- Although the notion of Israel's three
remaining cable companies merging into one large operator isn't entirely new, the concept
was recently given unofficial approval by the government, and momentum behind a deal is

Israel's antitrust law commissioner said in a recent
meeting that the government is unlikely to stand in the way should cable operators Golden
Channels, Tevel Israel International Communications Ltd. and Matav Cable Systems Media
Ltd. decide to consolidate.

The idea has been floated for some time, but the three
companies have not made any formal request for a merger. However, on Nov. 11, they made an
informal approach to the Ministry of Communications, provoking considerable media
speculation that they were beginning to consider the idea more seriously.

As part of the ongoing negotiations with regulators over
the rules that govern the cable operators, the companies wanted to ascertain whether such
a move would be permitted and whether the government would impose certain conditions.

The Council for Cable and Satellite, the government
regulatory body, said it would insist on certain basic conditions. The key condition
discussed was the separation of the companies' programming and distribution functions, so
that the operators would no longer have control over programming.

These informal talks were unrelated to word Nov. 8 that
Israeli minister of communications Limor Livnat was opening the official licensing process
for direct-to-home satellite services, even though the cable operators are still trying to
settle their regulatory dispute with the government.

Those talks -- aimed at redefining cable's regulatory
parameters in light of the introduction of DTH -- have officially broken down, and
Israel's Supreme Court will address the issue.

The most potent element that could come out of a three-way
merger of Israel's cable companies would be the creation of a large, national competitor
to Bezeq, the state-run telecommunications company. Bezeq's monopoly over
telecommunications services will end in 1999, allowing the government to open the lines to
a free telecommunications market.

Eli Nissan, head media consultant to the Israel
Broadcasting Regulatory Administration, said the cable companies could become "'the
competitor vis-à-vis Bezeq if they merge."

Gustavo Traiber, general manager of the Israel Television
Cable Association, refused to comment on the merger discussions, as did Idit Herzog,
spokeswoman for Golden Channels.

Industry insiders said the cable companies are talking
about merging in order to provide telephone services in competition with Bezeq and to
expand the scope of their business to compete with potential DTH platforms.

There is widespread agreement in Israel that consolidation
between the three operators makes economic sense, but two of the companies are known to
favor merging more than the third.

Golden Channels, with 408,000 subscribers, is considered
the most interested in consolidation. Tevel, with 564,000 customers, is also in favor of

But Matav -- the smallest, with 375,000 subscribers -- is
holding back, perhaps in anticipation of a better deal. The three have reportedly also
argued about the percentages that each would own in a single, merged entity.