Bezeq cites MTR reductions as primary driver for revenue declines in 2011

15 Mar 2012

Israeli telco Bezeq has released its financial results for the financial year ended 31 December 2011, revealing a 5.1% year-on-year drop in net profit to ILS11.37 billion (USD3 billion), with the operator saying that the decline was predominantly the result of sharp reductions in mobile termination rates (MTRs), which were in turn partially offset by increased handset sales and continued growth from internet and data services. Turnover from traditional fixed line voice services stood at ILS4.65 billion for FY2011, down 11.7% y-o-y compared with the ILS5.26 billion it recorded in the previous year. Excluding the impact of MTR cuts, Bezeq claimed that fixed voice revenue would have fallen by just 1% compared to FY2010. Fixed internet services saw turnover rise by 11.8% year-on-year, topping the one billion shekel mark for the first time at ILS1.09 billion. In the mobile sector, Bezeq’s wireless arm Pelephone recorded a 3.2% drop in total revenues, which totalled ILS5.55 billion in FY11, down from ILS5.73 billion in the previous fiscal year. Of that total, service revenues accounted for ILS3.64 billion, tumbling 20.1% y-o-y from ILS4.55 billion in 2010; with the drop again attributed to MTR cuts, Bezeq noted that excluding the impact of such reductions mobile service turnover would have fallen by 2.8% in 2011. Revenues from data, content and value added services (VAS) in 2011, meanwhile, helped offset service revenue drops, increasing by 18.4% to ILS1.2 billion, while handset sales in 2011 generated ILS1.91 billion, up 61.7% against the previous year.

Consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) for FY2011 stood at ILS4.64 billion, down 10% from ILS5.15 billion in FY10, while operating profit was ILS3.24 billion in the most recent fiscal year, representing a 13.4% y-o-y drop. Gross capital expenditures (CAPEX) for the twelve-month period amounted to ILS1.94 billion, an increase of 17.9% against the ILS1.65 billion spent in 2010, with Bezeq pointing to investment in its Next Generation Network (NGN) and the laying of submarine cable as the primary drivers of the higher expenditure. Net profit for 2011 was ILS2.07 billion, down more than 15% compared with FY2010.

Looking ahead, Bezeq Group has forecast that turnover, EBITDA and net profit for the 2012 financial year will all be similar to those recorded in 2011, while it said it expects free cash flow to improve compared to 2011, mainly due to the improvement in working capital and the completion of the NGN project and submarine cable deployment.

Commenting on the results, Bezeq chairman Shaul Elovitch noted: ‘2011 was characterised by intensifying competition in the communications market and by important regulatory changes. These developments have tested the strategy of the Bezeq Group, which focuses on the development and massive investment in communications infrastructure, amounting to a record of approximately ILS2 billion in 2011, while it increased its technological and service advantage in all areas of the Group’s operations. I am convinced that adoption of this market leadership strategy is the right way to face this challenging period and to emerge from it even stronger.’