REFILE-UPDATE 1-Cellcom sees revenue falling further due to price war

Tue Nov 13, 2012 3:55am EST

* Q3 profit down 38 percent to 124 million shekels

* Q3 revenue falls 13 percent to 1.45 billion shekels

* Opts against paying dividend for third quarter

JERUSALEM, Nov 13 (Reuters) - Cellcom, Israel's largest mobile phone operator, said it expects further declines in revenue in the fourth quarter after a price war in the sector sent revenue and profit down sharply in the third quarter.

Cellcom said on Tuesday it earned 124 million shekels ($32 million) in the quarter, down 38 percent from the year-earlier period. Revenue slipped 13 percent to 1.45 billion shekels and earnings before interest, taxes, depreciation and amortisation fell 20 percent to 430 million shekels.

Israel's mobile phone industry was turned upside down this year with the entry of six new operators, sparking a price war - with unlimited calling plans for around $25 a month - and leading to many customers switching companies.

"We continue to see the company's revenue erosion due to the transfer of subscribers to the new marketing plans, launched during the second and third quarters of 2012, in response to the heightened competition," Yaacov Heen, Cellcom's chief financial officer said. "We expect this erosion to continue in the fourth quarter as well."

Cellcom said it was implementing efficiency measures to adjust its expense structure to revenue levels, which would continue into 2013. Such steps led to a 58 percent rise in free cash flow to 414 million shekels.

Cellcom's subscriber base edged down 1.6 percent to 3.338 million.

It said the number of subscribers would start to grow as it won a contract with Israel's military, while a plan combining mobile and landline phone services had brought it a net 5,000 customers last quarter. Cellcom also said it sought new revenue streams through examining the entry into Internet TV.

Three operators, including Cellcom, had dominated the sector for more than 12 years until regulatory changes at the start of 2011 forced providers to slash the fees operators charge each other to connect calls and to scrap exit fines for customers, hurting revenue and earnings.

For the second straight quarter, Cellcom opted against paying a dividend, saying it wanted to strengthen its balance sheet. The board, it said, will re-evaluate its decision in coming quarters as market conditions develop.

Last week, Bezeq unit Pelephone, Israel's third-largest mobile provider, reported a 41 percent drop in quarterly profit while revenue fell 26 percent.

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