Israel’s Antitrust Authority has decided not to approve the merger between Bezeq – the telephone and telecoms monopoly – and DBS, a direct broadcast satellite company
The authority blocked the deal even though the parties had received conditional approval in January 2005. Bezeq helped to found DBS in 1998, owning a third of the shares in the company. During DBS’s first years of operation, in which it penetrated Israel’s multi-channel cable television market, Bezeq invested more money in DBS and raised its share in the company to 49.78 per cent. By the end of 2002, Bezeq’s investment in DBS represented about a 58 per cent stake, but gave Bezeq no immediate right to receive shares in return.
Bezeq allegedly acted in this way to avoid having to get the approval of the Israeli Antitrust Authority before increasing its stake above 50 per cent, and to prevent DBS from becoming a governmental subsidiary under the Governmental Companies Law and the subsequent limitation on its activity (DBS would have become a subsidiary of government-controlled Bezeq). Furthermore, Bezeq allegedly merged with DBS without the required approvals – a criminal offence under Israel’s Restrictive Trade Practices Law. Bezeq later decided to raise its official share in DBS to 58 per cent and to submit the application which was conditionally approved in January 2005.
The approval was conditional upon Bezeq not increasing its stake in DBS for a nine-month period, along with additional behavioral conditions. Because the parties objected to these conditions and did not merge for a year (the term in which the authority’s approval is valid), on August 2006 they asked for the agency’s reapproval, which was denied on 31 December 2006.
In February 2007, the authority published reasons for its decision. In brief, it believes that as a result of technological progress, Bezeq will become a potential competitor in the multi-channel television market. The authority believes that so-called internet protocol television technology – a third technology besides those used by cable television companies and DBS – will enable Bezeq to compete in this market. Consequently, the proposed merger raises both vertical and horizontal concerns.
On the assumption that Bezeq, a well-established telecoms monopoly, will probably avoid either competing against DBS or providing internet protocol television technology to other competitors, the authority decided that the proposed merger raises a reasonable concern of a significant harm to competition – which, under Israeli law, allows the authority to block a merger or to conditionally approve it. Although a set of conditions (mainly ‘open access’ and similar conditions) was proposed to Bezeq, it refused them, and the authority therefore decided to object to the merger. Bezeq has announced that it will challenge the decision before the Antitrust Tribunal.