UPDATE 2-Partner Communications Q2 profit up, shares fall

(Adds details, CEO/analyst comment)

JERUSALEM, July 31 (Reuters) - Partner Communications (PTNR.TA) (PTNR.O), Israel's second largest mobile phone operator, on Thursday reported an 8 percent rise in quarterly profit, helped by an increase in service revenues.

For the second quarter, net income was 247.3 million shekels ($73.8 million), or 1.57 shekels per share, compared with 228.1 million shekels, or 1.45 shekels per share, a year ago.

Revenue rose 5 percent to 1.54 billion shekels ($460.7 million).

Analysts on average were expecting earnings of 1.54 shekels a share, before special items, on revenue of 1.60 billion shekels, according to Reuters Estimates.

"We view these results positively, as they suggest Partner has successfully dealt with the threats and costs of number portability and the March 1 interconnect fee reduction," UBS analyst Darren Shaw wrote in a note.

"Partner continues to grow, pay good dividends, continues its share buyback programme and ... remains an attractive defensive -- with growth -- play in current volatile markets," Shaw added, maintaining a "buy" rating.

Partner's shares were down 3.2 percent at $21.82 in early Nasdaq trading.

In late 2007, the government mandated customers being able to switch carriers while keeping their existing numbers -- a plan that mobile operators were opposed to and spent a lot of money in trying to lure new customers while maintaining existing ones.

The company noted that it was making advancements to become a player in the broadband residential market.

"We intend to launch our new platform of services at the beginning of 2009," David Avner, Partner's chief executive, said in a statement.

Partner saw a service revenue growth of about 5 percent to 1.38 billion shekels ($410.5 million).

Its subscriber base grew 4.5 percent to 2.9 million with the addition of about 33,000 subscribers this quarter for a market share of 32 percent. Its base included 834,000 subscribers to its lucrative third generation (3G) network.

The company said the increase in revenue was partly offset by a fall in average revenue per user due to competitive pressures and regulatory intervention, largely the 14 percent drop in interconnect fees.

Partner said that its results so far this year and future prospects remain in line with its outlook from earlier this year when it predicted growth in revenues and profit but at a slower pace than in 2007 as it invests in 3G content and in attracting new customers.

The company operates under the Orange brand name and is 52 percent owned by Hong Kong's Hutchison Telecommunications International Ltd 2332.HK, which is controlled by Hutchison Whampoa (0013.HK).

Partner declared a dividend of 200 million shekels, or 1.26 shekels a share -- 38 cents --.

(Additional reporting by A.Ananthalakshmi in Bangalore)

(Reporting by Steven Scheer; editing by Elaine Hardcastle)