Israel's Cellcom Slates Big Layoffs to Cut Costs, Setting Off Strike

Pelephone also plans cuts as industry struggles with falling revenues, profits

FILE PHOTO: The logo of Israel's biggest mobile phone operator Cellcom is seen on the Cellcom building in Netanya, north of Tel Aviv, Israel January 28, 2014.
REUTERS/Baz Ratner/File Photo

Hundreds of employees discovered the harsh reality of Israel’s ailing cellular industry on Tuesday as two of the biggest players announced mass layoffs, setting off labor actions and strikes.

Cellcom Israel – the biggest of the mobile operators and most financially troubled of them – said it planned to lay off as many as 1,000 staff, a third of its total. The cuts, which will be made by the start of next year, aim to save 150 million shekels ($42.9 million) of costs, the company said.

At Pelephone , a subsidiary of Bezeq and Israel’s third-largest provider, plans are being readies to reduce the headcount by 400 people over the next three years.

At Cellcom workers didn’t wait to declare a formal labor dispute before walking out on Tuesday to hold an emergency meeting. The wildcat strike lasted most of the day, Maya Yaniv, who heads the Cellcom workers’ committee, vowed to wage a fight “like one never seen before” against the company.

Meanwhile, Pelephone workers crashed a meeting of the company’s board and announced they were launching a labor slowdown, which threatens to hurt sales by Pelephone of the new iPhone 11.

The news, however, was greeted positively by investors amid concerns that if Cellcom didn’t act aggressively to cut costs it faced possibly bankruptcy. After trading was suspended pending an announcement, Cellcom shares soared 14.3% by closing time on the Tel Aviv Stock Exchange to 8.75 shekels.

Shares of Partner Communications, its No. 2 rival, which has also been battered by competition in the cellular market, climbed 6% to 16.20. Bezeq rose 1.2% to 2.24.

Israel’s cellular industry has been struggling since wide-ranging reforms went into effect in 2012 that allowed more competition in a market previous shared by just three rivals. Subscribers not only had more choices but could switch from one provider to another more easily, forcing companies to slash rates.

Cellcom’s steps come amid other major industry developments this week. Haim Saban, the Israeli-U.S. entertainment magnate, said he was ready to cede control of Partner to its previous owner Hutchison Whampoa, rather than repay debt he owes the Hong Kong conglomerate.

In addition, media reports said Cellcom was in talks to merge with Hot Telecom.

However, a Cellcom source discounted the prospects of a tie-up like that because regulators were look askance at such a merger because it would not only reduce competition in mobile but in internet television and infrastructure. “A tie-up could happen between Cellcom and Golan Telecom or with Xfone. Buty right now it’s not in the cards,” said a management source.

Cellcom management, which had been preparing the recovery plan for weeks with the accounting firm Deloitte, is counting on the recovery plan to help lower the yield on its bonds to about 4%. The lower yield would enable the company to recycle its 2.2 billion shekels of debt.

“We must act immediately, look reality in the eye and take critical and difficult measures. This is the only way to ensure Cellcom’s future,” management said in a statement to investors on Tuesday.

Apart from the firings, Cellcom’s recovery plan also calls for raising about 400 million shekels. Sources close said that its parent, company Discount Investment Corporation, planned to contribute to the fundraiser to prevents its 47% stake from being diluted,

However, Cellcom will have a harder time convincing other investors to participate because of its management’s poor track record. The company raised 320 million shekels in the sale of shares and warrants in June 2018 at a price of 22 shekels a share, but since then the stock has plunged 60%.

“It’s obvious that there will be a market consolidation and that the industry will recover from the crisis and so will share prices,” said one source close to Cellcom management, who spoke on condition of anonymity. “We’ve suffered a lot because of our debt and historic expenses but compared to our competitors our revenues are better.”

Cellcom had about 1 billion shekels in cash on its books but rather than use it to pay down debt it has opted to carry large financial costs, which reached 108 million shekels in the first half of the year.

Cellcom’s turnaround plan also involves slashing between 450 million and 500 million shekels in capital spending annually. The reduction is less dramatic than it seems because most of it reflects an earlier sale of its fiber optic operations to IBC to cut down costs. The most dramatic of the step – the firing – will come at the management level now among the services and sales staffs,

“The goal is to preserve the soldiers and reduce the command,” said a source at the company.

CEO Nir Sztern sought to cool workers’ anger. “I am working to ensure that most of you will have a workplace that is stable, sure and strong for many long years,” he said in videotaped remarks to employees. “To my regret part of our plan includes layoffs. Cellcom’s organizational structure is overstaffed compared to our competitors, which hurts our competitiveness.”

Management sources said the workers’ committee reaction was expected. “They and the Histadrut [labor federation] have to internalize the situation of a company that isn’t profitable in an industry in crisis,” said one manager, who asked not to be named.

Israel’s cellular industry has cut its workforce by 50%, or more than 10,500 jobs, since the 2012 reofrms. But most of those layoffs were done in the early years and today the big three have proportionately big headcounts compared to the smaller, younger players. Cellcom alone has 7,254 employees in 2011, compared with about 3,100 today. Pelephone trimmed a third of its payroll in 2011-15 as revenues dropped 50% and net profit by 86%. Since 2015 it has only reduced its headcount by 8% while revenue dropped another 15% and profit by 84%.