Israel's Cellcom sees quarterly profits jump due to cost-cutting

Israeli mobile operator Cellcom has announced a year-on-year jump in quarterly profits despite declining revenues.

The company, which attributed the rise to lower expenses, decided not to issue a dividend for the quarter, due to the intense competition in the Israeli communications market. Regulators also recently blocked Cellcom's planned takeover of upstart operator Golan Telecom.

Net income rose from ILS26 million (€5.9 million/$7 million) to ILS59 million between the first quarter of 2015 and the first three months of 2016, a 126.9 per cent increase. However, the first quarter of last year included a one-time expense of ILS30 million due to a collective employment agreement: if that was excluded from the results for the first quarter of 2015, the rise would only be 15.7 per cent.

EBITDA was up 21.4 per cent or 5.3 per cent, again depending on whether that one-time expense is taken into account.

Total revenues were down 3.8 per cent year-on-year, from ILS1.06 billion to ILS1.02 billion, with service revenues falling 3.3 per cent from ILS800 million to ILS774 million. However, operating income was up 83.6 per cent from ILS55 million to ILS101 million. Free cash flow increased 17.3 per cent from ILS127 million to ILS149 million.

In terms of customer numbers, Cellcom had around 2.8 million mobile customers at the end of March, along with 120,000 households in the landline wholesale market and around 75,000 households consuming Cellcom TV. Some 11,000 households signed up for the company's TV service in the quarter, which Cellcom attributed to its addition of sports channels.

Nir Sztern, Cellcom's CEO, said the company had succeeded in strengthening its financial stability "despite the challenging competitive environment" in the first quarter of 2016.

Cellcom had hoped to reduce the level of competiveness through the acquisition of Golan Telecom, but was thwarted in its efforts by the Israeli communications regulator.

The regulator last week explained its decision to veto the takeover, saying it would concentrate the company's power too much and "bring about an opportunity for the setting of prices in an unfair manner and a rollback of the chief benefits of the cellular market reform of 2011".

Last year, the telecoms regulator said it saw no problem with Cellcom (or rivals Partner and Bezeq) buying Golan, as the market would "continue to be competitive". However, the proposal ran into significant opposition from the public and from politicians, including prime minister Benjamin Netanyahu.

Last week Cellcom said it was still in talks with Golan Telecom, which is part-owned by Iliad chief Xavier Niel, over "an agreement which would, if finalised and approved by the regulators, allow Golan Telecom to continue to use [Cellcom's] networks in the provision of its services".

For more:
- see Cellcom's results announcement
- see Cellcom's latest release regarding Golan Telecom

Related articles:
Israeli telecoms chief signals change in approach to competition
Cellcom Israel to buy Golan Telecom for €277M
Israel's Cellcom mulls purchase of rival Golan Telecom
Cellcom Israel, Golan Telecom seek approval for network-sharing deal
Xavier Niel: Leaving no stone unturned

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