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Veteran mobile carriers' profit down 39 percent in Q3
[November 22, 2012]

Veteran mobile carriers' profit down 39 percent in Q3

Nov 22, 2012 (Globes - McClatchy-Tribune Information Services via COMTEX) -- Growing competition in the mobile telephony market, and the advent of Hot Mobile and Golan Telecom, cut the profits of the three established mobile carriers by 39 percent in the third quarter, in comparison with the previous quarter. The aggregate profit of Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) and Pelephone Communications Ltd. was NIS 388 million. The three companies' aggregate revenue fell by more than NIS 1 billion (21 percent) to NIS 3.8 billion.

Yesterday, Partner, controlled by Ilan Ben-Dov's Scailex Corporation (TASE: SCIX; Pink Sheets:SCIXF), released its third quarter financials. The company's revenue fell 25 percent to NIS 1.32 billion, of which NIS 1.15 billion derived from services, 16 percent less than in the corresponding quarter of 2011.

Partner's competitors Cellcom and Pelephone have revenue from the new companies that use their networks (Hot Mobile, Rami Levy and Golan). Partner "hosts" You-Phone on its network, but the revenue therefrom is negligible.

Partner's EBITDA (earnings before interest, tax, depreciation and amortization) and net profit also fell by double-digit percentages, to NIS 41 million and NIS 100 million, respectively. Partner reports that the streamlining measures it introduced led to a fall of NIS 600 million in annual terms in its operating expenses. Over the past year, Partner's headcount has been reduced by 2,800, and company currently employs 5,800 people (including 012 Smile, acquired last year).

It looks as though Partner's strategy is paying off. Although the company is losing subscribers at the highest rate among the three veteran carriers (56,000 in the quarter), its ARPU (average revenue per user) remains the highest in the market, at NIS 97, which compares with NIS 95 at Pelephone and NIS 87 at Cellcom. Cellcom has about 300,000 more subscribers than Partner, but its revenue from services and EBITDA are only slightly higher.

Partner's free cash flow totaled NIS 375 million, after an investment of NIS 125 million in upgrading its network and information systems. "The quarterly results reflect the company's financial and business strength," said CEO Haim Romano.

In the fixed-line sector, Partner reports a loss of subscribers. The number of active fixed lines (including 012 Smile) is 282,000, 4.4 percent fewer than in the corresponding quarter, but slightly more than in the previous quarter. The Internet subscriber base shrank by 6 percent in comparison with the corresponding quarter, and by 2.5 percent in comparison with the previous quarter, to 594,000.

Partner is traded on Nasdaq and in Tel Aviv, with a market cap of $890 million. The company recently cancelled its dividend policy, and accordingly it will not distribute a dividend out of its third quarter profit. The matter will be reviewed in the next quarter.

A beneficiary of a dividend, if one is declared, will be controlling shareholder Scailex (44 percent), which a few days ago announced its intention of raising NIS 500 million in new debt. It is doubtful whether this offering will meet with success among the investment institutions, after Ben-Dov failed to meet the commitments of another company he controls, Tao Tsuot Ltd. (TASE: TAO-M).

Yesterday, Scailex reported that talks with the Haim Saban group for the sale of part of the controlling interest in Partner were making progress. The negotiations concern the sale of part of Scailex's stake, and a joint control agreement between Scailex and Saban in Partner. Should a deal be signed, the consideration will include cash and release from debt in an amount yet to be determined.

___ (c)2012 the Globes (Tel Aviv, Israel) Visit the Globes (Tel Aviv, Israel) at fid=942 Distributed by MCT Information Services

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