Israel Considers Merging Bezeq and Yes, Ending Structural Separation

Israel's Ministry of Communications and the Treasury are considering a significant shift in the telecommunications market: allowing the full merger of Bezeq, the infrastructure company, with its satellite and content subsidiary, Yes. This move would end the structural separation imposed on Bezeq in 2000, a policy designed to foster competition. The discussions, led by Ministry of Communications Director General Elad Mكدsi, are moving towards a public hearing, though a final decision has not yet been made. Officials estimate a merger would not occur before 2027.

Bezeq is seen by the government as having fulfilled its regulatory obligations to open the market, particularly through extensive fiber optic infrastructure deployment accessible to competitors. This has weakened the rationale for continued structural separation. However, regulators anticipate that any merger approval would come with strict conditions, including operational separation between Bezeq's infrastructure arm and its retail activities to prevent market abuse.

For Bezeq, led by Chairman Tomer Ra'abad and CEO Nir David, a merger represents a strategic opportunity to enhance its marketing capabilities. It would enable the company to offer integrated internet and television packages, closing a gap with competitors like HOT, Cellcom, and Partner. This could also help Bezeq transition approximately 400,000 customers still on its old copper network to its advanced fiber infrastructure.

The merger also presents significant financial benefits. Bezeq could leverage Yes's accumulated losses, estimated at NIS 5.3 billion, to offset its own profits. This is projected to increase Bezeq's annual profits by about NIS 120 million, totaling approximately NIS 1.2 billion over a decade. Additionally, the merger is expected to accelerate operational efficiencies at Yes, which has already announced plans to reduce its workforce by about 14%.

Reactions from competitors are mixed. Some are prepared to face a consolidated Bezeq, citing the established competition in fiber infrastructure. Others strongly oppose the move, warning of Bezeq gaining excessive market power and demanding that any merger be contingent on all customers transitioning to fiber. The structural separation was initially implemented to prevent Bezeq, a former monopoly, from leveraging its infrastructure control to disadvantage rivals and bolster its subsidiaries.