Cellcom suffers amid increased competition as it posts 43.5% drop in net profit in 1Q12

16 May 2012

Amid increasing competition and lower prices for consumers in the wireless sector, Israel’s largest cellco by subscribers, Cellcom, has revealed a 43.5% year-on-year on drop in net profit. For the three months ended 31 March 2012 the operator posted a net income of ILS173 million (USD47 million), down from ILS306 million in the same period a year earlier, with Cellcom attributing the drop in the main to lower service revenues. In the first quarter of 2012 Cellcom generated a total turnover of ILS1.585 billion, almost unchanged against 1Q11 when it saw revenues of ILS.1587 billion. Of the total, service revenues accounted for the bulk – ILS1.186 billion – although this was down by 1.6% y-o-y from ILS1.205 billion. Such declines were offset by higher turnover from handsets and equipment, which rose by 4.5% against 1Q11 to reach ILS399 million. Looking in more detail at service revenues, Cellcom noted that the drop in turnover had ‘resulted mainly from the ongoing price erosion, due to the increased competition in the market’. It did, however, say that a 10.9% rise in revenues from content and value added services (VAS) in the first quarter of 2012 had helped offset some of the service revenue declines. Earnings before interest, depreciation and amortisation (EBITDA), meanwhile, stood at ILS475 million for the first three months of 2012, representing a fall of almost 26% compared with the year-ago period.

As at end-March 2012 Cellcom’s total mobile subscriber base numbered 3.362 million, down from 3.395 million a year earlier and a drop from a peak of 3.415 million three months earlier. Meanwhile, in the first quarter of the 2012 fiscal year Cellcom said that it had added approximately 57,000 net new 3G subscribers, bringing the number of customers signed up to its third-generation services to 1.388 million, up from 1.188 million at end-March 2011. Quarterly churn in 1Q12 was 6.3% compared with 7.1% in the same period of 2011, while average monthly minutes of use (MoU) per mobile subscriber in the most recent financial period was 365, up from 334 in 1Q11. Average revenue per user (ARPU) for the quarter, however, was down compared to a year earlier at ILS90.5, compared with ILS115.2, with the drop attributed to the ‘ongoing airtime price erosion’.

Commenting on the results, Cellcom CEO Nir Sztern said: ‘Comparing the results of the first quarter of 2012 with the first quarter of 2011, we see a decline in profitability as a result of the regulatory changes and increased competition. However, if we compare the first quarter 2012 with the fourth quarter 2011, we can see a decrease in the Company’s expenses of approximately ILS80 million as a result of the efficiency measures we implemented … The intensified competition which characterised this past year, led to a continued reduction in service revenues. The decline in service revenues will continue in the following quarters and may even escalate as a result of the new competition, and so, we intend to implement additional efficiency measures regarding costs and merger synergies, but we estimate that these measures will only partly compensate for the decrease in revenues.’

Israel, Cellcom