Bezeq blames lower revenues, net profit on MTR reductions

10 Nov 2011

Israeli fixed line incumbent Bezeq has released its financial results for the three months ended 30 September 2011, revealing a 6.5% year-on-year drop in net profit on the back of a 3.8% drop in turnover. In the third quarter of its financial year Bezeq posted a net income of ILS550 million (USD148 million), down from ILS588 million in the same period a year earlier, with the company claiming that the decline stemmed ‘mainly from higher finance expenses due to, inter alia, increased debt’.

Consolidated turnover for the three month period stood at ILS2.92 billion, down from ILS3.03 billion in 3Q10, with Bezeq noting that revenues from both its fixed line operations and from its mobile subsidiary, Pelephone, had been adversely affected by lower mobile termination rates (MTRs) that were introduced at the start of the year. Fixed line revenues in 3Q11 were ILS1.19 billion, down 10.4% y-o-y, although Bezeq claimed that excluding the impact of lower interconnection fees from both periods, turnover in 3Q11 was similar to the year-ago period with increased revenues from internet, data communications and transmission services offsetting continued declines in fixed voice revenues. Total mobile revenues totalled ILS1.42 billion in the three month period under review, down 1.5% from the ILS1.44 billion reported in 3Q10, although Bezeq noted that Pelephone’s service revenues tumbled by 21.1% y-o-y to ILS914 million; after adjustment for the reduction in MTRs, Pelephone’s service revenues fell by 4.3% y-o-y. The company claimed that the decline in mobile service revenue was, in part, the result of lower tariffs introduced in the wake of intensifying competition in the Israeli mobile sector.

Consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) meanwhile stood at ILS1.30 billion, down 2.1% from the ILS1.33 billion recorded in the same period a year earlier.

In operational terms, at the end of September 2011 Bezeq’s fixed voice accesses totalled 2.34 million, down 1.7% year-on-year, while high speed internet subscriber numbers reached 1.10 million, up from 1.06 million a year earlier. Pelephone meanwhile saw a 3.8% annual rise in total subscribers, with the cellco reporting a customer base of 2.93 million at end-September 2011, of which 1.76 million were classified as taking 3G services.

Commenting on the results, Alan Gelman, Chief Financial Officer and Deputy CEO of Bezeq, noted: ‘Our results for the current quarter were influenced by challenges associated with navigating a competitive market environment as well as a dynamic regulatory landscape. Revenues from our fixed line operations and cellular services were adversely affected by the regulatory reduction of mobile termination rates to the cellular networks which commenced 1 January of this year. Significant growth in revenues from the sale of cellular terminal equipment at Pelephone, along with continued growth in revenues from Internet and data services at Bezeq Fixed-line and Bezeq International, helped mitigate those trends. Our operating profit and EBITDA showed moderate declines that stem mainly from the effects of more intense competition in the cellular market.’