Bezeq 2Q results dented by regulatory changes, competition

2 Aug 2012

Israel’s Bezeq has released its financial results for the three month period ended 30 June 2012, with the operator revealing a slump in both revenue and net profit amid what chairman Shaul Elovitch called ‘comprehensive regulatory changes and intensifying competition in the various areas of [its] operations.’

For the quarter under review Bezeq generated a consolidated turnover of ILS2.595 billion (USD679 million), down 10.3% year-on-year from ILS2.893 billion, with the company attributing the decline predominantly to lower revenues from the sale of cellular handsets and the erosion of turnover from cellular services. Indeed, Pelephone, Bezeq’s wireless subsidiary, reported total turnover of ILS1.15 billion, down from ILS1.44 billion in 2Q11, a decline of more than 20%. Mobile service revenues fell from ILS925 million in the second quarter of 2012 to ILS857 million a year later, with the decline stemming primarily from ‘tariff erosion as a result of increased competition in the market.’ Mobile equipment revenues meanwhile tumbled by more than 40% to ILS291 million as a result of lower handset sales. Bezeq’s fixed line revenues for the three-month period totalled ILS 1.16 billion, down marginally from ILS1.17 million in the same quarter of 2011, mainly resulting from a 5.8% drop in telephony revenues, which was offset by a 6% increase in turnover from internet and transmission services. Net profit for the second quarter of 2012 was ILS415 million, down by just over 29% year-on-year, while operating profit amounted to ILS746 million (down 20.2%) and earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 14.0% to ILS1.10 billion. The decrease in operating profit, EBITDA and net profit, Bezeq said, was primarily attributable to the decrease in profitability in the cellular segment.

In operational terms, at the end of June 2012 Bezeq’s claimed to have strengthened its status as the country’s market leader in the internet sector, with subscriber numbers increasing by 4.4% to 1.136 million. Average revenue per user (ARPU) for broadband services stood at ILS80 per month in 2Q12, relatively unchanged year-on-year. Fixed voice accesses meanwhile continued on a downward trend, with Bezeq recording 2.335 million such connections at end-June 2012, down from 2.356 million a year earlier. Pelephone’s customer base meanwhile increased by 1.1% to 2.859 million.

Commenting on the telco’s prospects in the wake of the results, Mr Elovitch noted: ‘Our strategy of long-term investment in advanced infrastructure, innovative services and first class customer service, have made us the leading communications group in Israel, well capable of dealing with the competition. The current changes in the communications market also have a positive potential for Bezeq, in that they can be leveraged for greater operational efficiency while creating business opportunities for the Group as a whole.’