(Adds details, analyst comments, share reaction, background)
JERUSALEM, March 26 Israel's anti-trust authority said on Wednesday it will allow Bezeq Israel Telecom to merge with its satellite TV provider YES.
Bezeq holds a 49.8 percent stake in YES, which has close to 600,000 subscribers. It has long sought to boost its holding to save costs and be able to market a triple-play package of TV, phone and Internet and compete with cable company HOT, which already has a triple-play option.
The authority, though, has attached a number of conditions on the merger such as not being allowed to buy exclusive content from abroad for a few years, while Bezeq will also be prohibited from marketing a triple-play package for now.
YES is 50.2 percent owned by Eurocom, which is controlled by Bezeq Chairman Shaul Elovitch. Franco-Israeli telecoms billionaire Patrick Drahi owns HOT.
Citi analyst Michael Klahr said the step was positive for Bezeq since it will give tax benefits of up to 1.5 billion shekels ($430.5 million) as well as potential merger synergies.
"A full operational merger between Bezeq and YES, which would allow Bezeq to take out costs and market the TV product as a real triple or quad play, is still dependent on the MOC (Minister of Communications) allowing a relaxation of structural separation at Bezeq as the wholesale market is opened up to competition," he wrote in a note to clients.
That is not expected for at least two years, he added.
Israel's government is in the process of creating a wholesale telecoms market that will allow other companies to use the infrastructure of Bezeq and HOT.
The Communications Ministry favours opening up the multi-channel TV market to competition, which would lower costs to consumers. Mobile phone operators Cellcom and Partner Communications have expressed interest in launching TV ventures.
Bezeq's shares were up 0.7 percent in late trading in Tel Aviv.
In 2009, the anti-trust authority rejected a merger on grounds it would be anti-competitive but Israel's anti-trust court allowed the merger to go forward subject to certain conditions. The country's high court later sided with the authority.
($1 = 3.4844 Israeli Shekels) (Reporting by Steven Scheer)