Israel’s Bezeq rated a ‘Buy’

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Investment bank Jefferies has initiated coverage of Israeli telco and broadcaster Bezeq and giving the company a ‘Buy’ rating.

Jefferies confirms that Bezeq, which supplies fixed-line and cellular telephony and is the 100 per cent owner of pay-TV operator YES TV, will launch its fibre network later this year following a change to Israeli regulations which limited Bezeq activity. Bezeq expects to have 80 per cent of Israel supplied with fibre within about 5 years.

Bezeq is committed to switching from satellite-delivery of its YES TV/DBS broadcasts to broadband OTT over the next 5-6 years. “The market was historically a duopoly between HOT and DBS, which remain the no.1 and 2 players. New entrant OTT services from Cellcom, Partner and international providers (including Netflix, Apple and Amazon) have intensified competition and created a growing ‘discount’ segment,” says the bank.

The bank’s report reminds investors that it is Israel’s new government policy which recognised it had gone too far in promoting competition. “A new fibre framework build is imminent, and should release Bezeq from onerous coverage obligations.”

“Bezeq will benefit from being able to offer residential fibre access for the first time (eliminating a competitive disadvantage), higher ARPUs as retail and wholesale access customers migrate to fibre, and discouraging rivals from pursuing overbuilds. Since ~80 percent of ISP subs take internet access from the parent, a better access product should drive up ISP share,” adds the bank’s report.

YES TV is responsible for 15 per cent of Bezeq’s overall revenues although only 6 per cent of its EBITDA income.


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