A week and a half ago, Partner and Bezeq announced with great fanfare the signing of an agreement for the purchase of the non-residential right of use (IRU) for 120,000 Bezeq fiber lines (in five annual pulses) for a period of 15 years and in exchange for a total sum of NIS 574 million to be paid by Partner in five installments at the beginning of each calendar year in the years 2023-2027.
In addition to the payment for the right of use, Partner will pay a maintenance fee of 4% for all the lines in which Partner received the right of use that year. The partner also has an option to purchase the right to use 48,000 additional lines under the same conditions and to extend the right of placement for two additional periods of 5 years each.
In total, the expected revenues for Bezeq (payment for the sale + maintenance + interest) may reach about one billion shekels for the period of the agreement: the right of use gives the partner access to homes where its fiber infrastructure does not reach, similar to Cellcom’s agreement with IBC and in fact expands the scope of the access of the partner’s fiber infrastructure.
On the face of it, this is a win-win situation for both companies. Partner can continue to expand the fiber deployment without investing huge sums while at the same time receiving a discount on the wholesale market rate that is customary in the market (the price derived for the line is about NIS 44 per month) and cheap financing in relation to the cost of its debt. Bezeq, for its part, takes advantage of the large network it has deployed and generates the potential for additional revenues on those fibers, increases the utilization of the network and creates stability in the flow of Shokas revenues.
The claim of the Ministry of Communications – the agreement is only good for the two companies and does not serve the entire potential market
The Ministry of Communications hastened to respond to the emerging agreement and claimed that “from a preliminary point of view, it was found that the agreement raises competitive concerns considering that it is adapted to the characteristics of a single authorized supplier (partner) and therefore cannot be used as a relevant off-the-shelf offer for other authorized suppliers in the wholesale market.” What does this mean? I believe that the agreement offered by Bezeq to the partner is unique and tailored specifically to it in terms of the scope of the financial commitment, the scope of the lines and the ability to commit for a period of 15 years. In fact, with the exception of Celcom, which is bound by the IRU agreement with IBC, there are no other telecommunications companies in the market that could undertake an agreement of these scopes, and therefore the agreement does not It can be used as a shelf proposal for anyone who needs it.
In practice, we estimate that the goal of the office is to get Bezeq to put on the table a shelf proposal for an IRU agreement that will be smaller in scope than Partner’s and that will be used by every existing and future player in the Internet infrastructure market and there is no intention to drop the agreement with Partner from the agenda. The agreement may indeed undergo adjustments, but not those that would substantially harm the commercial conditions between the two companies and Bezeq will at the same time formulate a shelf proposal that will please the Ministry of Communications.
Let us recall that the change of ministers in the Ministry of Communications may also bring with them personnel changes in the ministry and a new agenda regarding fiber, which will not necessarily be similar to that of the previous minister. In addition, the appointment of a new Vice President of Economics (replacing Dr. Raz Dror) is still on the agenda and is a key figure in the office and has a substantial impact on the future competition structure.
Bottom line, we believe that IRU agreements are indeed the right way to encourage competition in the fiber market and as long as such agreements become off-the-shelf offers (in IBC they exist), the issue of controlling wholesale market prices may become marginal. Regarding the agreement in question between Bezeq and Partner, we are of the opinion that even if minor changes are made to the agreement the two companies will still benefit from the cooperation.
**The author is the director of the research department of IBI Investment House**