Israel Weighs Lifting Bezeq Structural Separation to Enable Yes Merger

The Israeli telecommunications market is facing a potential major shake-up as the Ministry of Communications and the Ministry of Finance lean toward lifting the structural separation requirement on Bezeq for the first time since 2000. This shift would pave the way for a full merger between the telecom infrastructure giant and its satellite and content subsidiary, yes.

Regulatory Discussions and Conditions

Discussions have been led in recent weeks by Ministry of Communications Director General Elad Makdasi, with plans to advance a public hearing on the matter. Officials emphasized to TheMarker that the issue is still under review and has not been finalized, with actual merging activity unlikely to occur before 2027. Bezeq has declined to comment on the developments.

Government ministries believe that Bezeq has fulfilled its regulatory obligations to open the telecommunications market to competition—primarily through deploying a wide fiber-optic infrastructure and opening it to competitors—thus weakening the justification for maintaining the structural separation. However, regulators estimate that approving the merger will be conditioned on imposing strict limitations, including operational separation between the infrastructure arm and retail operations to prevent market abuse.

Strategic and Financial Implications

For Bezeq, led by Chairman Tomer Ravad and CEO Nir David, the move represents a significant strategic shift that will dramatically improve its marketing capabilities. Eliminating the separation will allow the company to offer bundled internet and television packages for the first time, closing the gap with competitors Hot, Cellcom, and Partner. This unified marketing approach will also assist Bezeq in migrating roughly 400,000 customers still on legacy copper lines over to its advanced, discounted fiber network.

The merger will allow Bezeq to leverage a tax asset stemming from the accumulated losses of yes, totaling approximately 5.3 billion shekels, which is expected to boost the group's net income by about 120 million shekels annually.

The offset of these losses against Bezeq's profits is projected to save the group roughly 1.2 billion shekels over a decade. Additionally, the move will accelerate operational efficiencies at yes, which has already announced plans to downsize its workforce by about 14% in the coming years.

Market Reactions and Historical Context

Reactions within the telecommunications market have been mixed. Some competitors have expressed readiness to face a unified Bezeq given the established competition in fiber infrastructure by players like IBC and Partner. Conversely, other market participants voiced fierce opposition, warning that lifting the separation would grant Bezeq excessive market power and demanding that the reform be conditioned on a complete nationwide transition to fiber infrastructure.

Structural separation was originally imposed on Bezeq in the early 2000s to prevent the former monopoly from leveraging its control over national infrastructure to disadvantage rivals and bolster subsidiaries such as yes, Pelephone, and Bezeq International. Lifting the separation was a central element of the high-profile Case 4000, in which it was alleged that previous promotion of the step bypassed professional tiers. A subsequent attempt to cancel the separation was rejected in 2020 due to the ministry deeming market competition too fragile, but shifting infrastructure maps have now triggered a comprehensive policy reassessment.