May 29, 2014 / 9:47 AM / 3 years ago

UPDATE 1-Bezeq Israel Telecom Q1 profit beats estimates

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By Steven Scheer

JERUSALEM, May 29 (Reuters) - Bezeq Israel Telecom reported a smaller-than-expected decline in quarterly net profit and said it was investing in fibre-optic cable deployment.

Bezeq, Israel's largest telecoms group, said on Thursday it earned 457 million shekels ($131 million) in the first quarter, down from 497 million a year earlier but above a forecast in a Reuters poll of 441.7 million shekels.

Bezeq's revenue fell 3.9 percent to 2.311 billion shekels, in line with expectations, with revenue from telephony services down 16.5 percent while Internet revenue gained 7.1 percent.

The drop in net income was largely due to a 29 percent fall in profit at mobile unit Pelephone, while profit at Bezeq's fixed-line division - which offers phone and Internet services - slipped 4.6 percent.

Pelephone and its two main competitors are grappling with a price war following a shake-up of Israel's mobile phone industry in 2012 that ushered in six new operators. Competition has also been fierce for Internet services. The number of subscribers at Pelephone fell 4 percent over the prior year to 2.631 million.

Bezeq said streamlining of operations and a reduction in expenses helped the company maintain profitability levels despite the growing competition and amid a government-mandated decrease in fixed call termination rates.

Last week, Bezeq raised its 2014 profit forecast following the sale of its Yad2 classified ads website to Axel Springer Digital Classifieds. Bezeq forecast annual net profit of 2 billion shekels and earnings before interest, tax, depreciation and amortisation (EBITDA) of 4.5 billion shekels.

Bezeq will begin to see competition soon from a company starting to deploy a nationwide fibre-optic network. As such, Bezeq said it was rolling out fibre-optic cables throughout the country at record pace.

"We are ... investing in state-of-the-art technologies for multi-channel TV, and are beginning deployment of our new 4G LTE mobile network," said Bezeq Chairman Shaul Elovitch, adding that "these are challenging times for the Israeli telecom market".

By the end of 2014, the fibre-optic network is expected to cover nearly 1 million households and businesses - some 40 percent of Israel's population, Bezeq said.

While mobile operators were building fourth-generation networks, the government has yet to issue 4G frequencies.

UBS analyst Roni Biron said Bezeq's share performance in the second half would be dominated by regulatory issues, such as progress in allowing Bezeq to merge with its satellite TV unit YES and the opening of a wholesale market, which will enable competitors to lease infrastructure from Bezeq and cable firm HOT.

"In mobile, the main events to watch for are the 4G tender and any signs of price stabilization," Biron wrote in a client note.

Bezeq's shares were down 0.3 percent in morning trade, in line with the broader Tel Aviv bourse.

Earlier this month, Cellcom, Israel's largest mobile operator, posted a 70 percent rise in quarterly profit while rival Partner Communications recorded a 68 percent increase.

$1 = 3.4805 Israeli Shekels Editing by Dale Hudson

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