Two days after the results of the 4G cellular tender were published, and two and half weeks after Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) entered the television market, setting a chain reaction in the cellular market, the decline in the share prices of Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) and Cellcom has reached nearly 40% of their value at the start of the year.
Senior communications market and capital market sources are painting a very gloomy picture, following the dramatic developments in the cellular market, and saying that the extreme response, as reflected in the plunging share prices, is an overreaction.
A senior communications source told "Globes," "Partner acquired Mobile 012 for NIS 1.5 billion in 2010, and now all of Partner is worth only NIS 2 billion. It's understandable that investors are worried that their profits will continue to fall in the coming year, creating a situation in which the companies will have to decide how to continue servicing their debt. That will be the turning point, because it's clear to everyone that something will happen, and this situation cannot continue. The problem is also that there is no Minister of Communications, and won’t be one until at least June, so you can't expect the regulator to step in and prevent a collapse."
Other market sources believe that the declarations by the Ministry of Communications that it does not intend to allow mergers in the sector in the coming year will further exacerbate the investors' anxiety. It appears that the price war in the market will last to the bitter end, which will of course threaten the veteran companies.
In the middle of all this, the Ministry of Communications is introducing another player into the cellular market Xfone, which bought frequencies in the tender. The result is additional pressure on prices, because it is clear that Xfone will have to make a splash with its price; the guarantee that it deposited in the tender depends on its ability to acquire market share.
"Unless it gains a market share according to the formula set by the Ministry of Communications, Xfone won't be able to regain its NIS 17 million guarantee. That means that they have poured more oil on the fire," senior market sources said.
Published by Globes [online], Israel business news - www.globes-online.com - on January 15, 2015
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