Regulation hits Partner as it reports net profit slump in 2Q11

11 Aug 2011

Israeli mobile network operator Partner Communications, which offers services under the Orange brand name, has released its financial results for the three months ended 30 June 2011, revealing a plunge in net income in the period, with the operator predicting that profit will fall further in the second half of the year. For the company’s second fiscal quarter it reported net income of ILS205 million (USD60 million), down 20% year-on-year against the ILS293 million in the same period of 2010. Going forward, the company noted: ‘In light of the recent regulatory changes, including the reduction in interconnect tariffs, the reduction of exit fines and the increased competition in the market, we are witnessing a material reduction in the profitability of cellular services. We therefore expect net income for the second half of 2011 to be significantly lower than the second half of 2010.’ Earnings before interest, tax, depreciation and amortisation (EBITDA) meanwhile stood at ILS586 million, a 9.3% drop against 2Q10.

Revenues, however, increased against 2Q 2010, with Partner posting total turnover of ILS1.887 billion, up 12.6% y-o-y, although the increase was purely the result of consolidating the results of local alternative fixed line provider 012 Smile Telecom, which was formally acquired by Partner in March 2011. Excluding revenue from the new acquisition – which totalled ILS289 million – Partner reported that total turnover for the quarter was ILS1.622 billion, representing a 3.2% decline compared with the same period in 2010. Service revenues meanwhile (excluding 012 Smile) were ILS1.102 billion, a 21% y-o-y drop, with Partner claiming that the decline ‘mainly reflects the 71% reduction in the interconnect voice tariffs and the 94% reduction in the interconnect SMS tariff from 1 January 2011, which together reduced service revenues by approximately ILS265 million this quarter.’

In operational terms, at end-June 2011 Partner’s wireless subscriber base was 3.175 million, up from 3.149 million a year earlier, with post-paid subscribers accounting for the bulk of users (72.9%). The quarterly churn rate was 6.5% compared with 5.1% in 2Q10, although down from 7.3% in 1Q11, with the operator claiming that the majority of churn was related to pre-paid subscribers and customers with payment collection problems, although it did note that ‘increased competition in the market has also led to a significant increase in the voluntary churn of post-paid subscribers.’ Partner’s local fixed line telephony subscriber base including 012 Smile (residential and business subscribers) reached approximately 292,000 at the end of the quarter.

Israel, 012 Smile Telecom, Partner Communications Company