August 14, 2012 / 10:46 AM / 7 years ago

UPDATE 1-Cellcom, Partner plan Internet TV as mobile competition bites

* Cellcom Q2 profit 121 mln shekels vs 114 mln forecast

* Partner Q2 profit 120 mln shekels vs 98 mln forecast

* Weaker handset income hits revenues

* Shares rise after steep 2011, 2012 declines

By Steven Scheer

JERUSALEM, Aug 14 (Reuters) - Israel’s two largest mobile phone operators Cellcom and Partner Communications are planning television-over-Internet services as weak earnings highlighted their need for profitable new earnings streams.

Haim Romano, Partner’s chief executive, said on Tuesday the company was working to accelerate TV Internet services. “Once the conditions are ripe, Partner will offer an innovative, quality and attractive solution also in this area,” he said.

Cellcom CEO Nir Sztern also said he was examining Internet TV as well as an entry to the cellular credit card business.

The two companies need new revenue streams to adapt to a rapidly changing telecoms landscape. Cellcom, Israel’s largest mobile operator, Partner, the No. 2 operator, and Bezeq unit Pelephone had dominated the sector for more than 12 years until six new operators entered the market this year.

That led to a price war, including unlimited calling plans at $25 or less, in which hundreds of thousands of customers switched to new discounted services. HOT’s new mobile service for instance attracted 250,000 customers in 10 weeks.

Any new Internet TV ventures would need regulatory approval but Israel’s communications minister has pushed for such services to sharply lower consumers’ bills to around 100 shekels ($25) a month, from some 250 shekels charged by cable company HOT and satellite TV provider YES, a unit of Bezeq .

Cellcom and Partner, which operates under the Orange brand, said new competitors and a government mandate in early 2011 to slash call connection fees had forced them to take efficiency measures. Partner has cut 2,100 employees since last October.


Cellcom said its measures such as lowering headcount and reducing expenses had led to savings of 300 million shekels a year. It also won a tender to supply 60,000 army personnel with mobile services.

Its shares were up 3.7 percent in afternoon trading in Tel Aviv, clawing back from a 61 percent decline so far in 2012 and 45 percent drop in 2011. Partner shares, down 60 percent in 2012 and 53 percent in 2011, bounced 6.8 percent.

The two companies have made other moves to combat the new competition.

Cellcom completed its merger with internet service and local and long distance calling provider Netvision and offered a package of mobile, home phone and Internet, while Partner is integrating Netvision rival 012 Smile and has launched an inexpensive mobile plan under the 012 name.

Still, the two acknowledge the full hit to their profits has yet to be felt.

“This quarter does not reflect the full impact of the increased market competition following the entry of the new competitors ... characterised by unlimited packages at significantly lower prices ... whose full impact we will see in the coming quarters,” said Sztern.

Cellcom posted a 50 percent drop in second-quarter net profit to 121 million shekels, above expectations in a Reuters poll of 114 million. Revenue, hurt by a decline in equipment sales, fell 5.7 percent to 1.50 billion and its subscriber base fell by 29,000 to 3.333 million.

Partner recorded a 41 percent fall in net profit to 120 million, above expectations of 98 million. Revenue declined 24 percent to 1.43 billion as equipment income slid 59 percent. Its subscriber base fell by 49,000 to 3.1 million.

Partner will pay a quarterly dividend of 1.03 shekels a share and said it may buy back up to 200 million shekels of its bonds in the coming year.

Cellcom’s board opted against a dividend for the second quarter but would evaluate its decision in coming quarters.

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