Partial Vertical Integration in Telecommunication and Media Markets in Israel

Partial vertical integration is common in many telecommunication and media markets in Israel. That is, there are many cases in which the supplier of an input holds a partial (often controlling) stake in the input's customer (which we call the “distributor” for concreteness), or the distributor holds a partial ownership (often controlling) stake in the supplier.2 This is in contrast to full vertical integration, in which the supplier holds 100% of the distributor's equity, or the distributor holds 100% of the supplier's equity. For example, since early 2010, when it took over Bezeq, Eurocom Communications Ltd. which imports Nokia cellular phones to Israel has an indirect control over Pelephone, which is the third largest cellular operator in Israel and buys cellular phones from Eurocom for its customers. However, even though Eurocom now indirectly controls Pelephone, its stake in Pelephone is far below 100%. Similarly, Bezeq International Ltd., which is fully owned by Bezeq, currently holds a 67% stake in Walla! Communications Ltd., which operates the Walla internet portal. Walla, Bezeq International and Bezeq, are (partially) vertically integrated because Walla requires internet-access services that Bezeq International supplies, and it also requires access to the infrastructure that Bezeq supplies