Partner 2Q Profit Slides 80%, Sees Losses Ahead

Cellphone operator cites intense competition, although churn rates improves.

Tomer Appelbaum

Citing intense competition, Partner Communications, Israel’s second-largest mobile phone operator has reported an 80% drop in quarterly profit.

Partner, the first of Israel’s telecoms firms to report, said it earned just 9 million shekels ($2.4 million in the second quarter, down from 46 million a year earlier as revenue slipped 4% to 1.04 billion. Its subscriber base dipped 6 percent to 2.75 million customers.

Despite the steep slide, the company did better than market analysts had expected. They had forecast Partner to earn 5.5 million shekels on revenue of 1.03 billion, according to a Reuters poll of analysts.

But Partner said it may make a loss in the third quarter due to a one-time 35-million-shekel expense linked to a retirement plan that will trim its workforce by 350 in the next few months, as well as the negative effects of competition.

Shares of Partner, which like its biggest rival Cellcom Israel have been rallying this year on hopes that the worst of the cellphone rivalries were past the industry, ended down just 0.1% at 16.45 shekels after recovering from a daily low of 15.21.

Israel’s mobile phone industry was shaken up in 2012 with the entry of a host of new operators, sparking a price war that led to steep drops in subscribers, revenue and profit at Partner and the other two incumbent rivals, Cellcom and Bezeq’s Pelephone unit.

Partner is hoping to stem a rough three years by taking advantage of a new wholesale reform in the telecoms sector, in which Bezeq – the owner of a nationwide DSL network – must lease its infrastructure to smaller rivals.

Partner and a handful of other players have started offering a package of Internet and other services at far lower costs than Bezeq. Cellcom, which will report quarterly earnings on Thursday, has already launched a low-cost TV service using the Internet and Partner has said it may follow suit.

“We are intent on becoming a significant player, furthering competition in the fixed telecommunications market,” said Isaac Benbenisti, Partner’s CEO.

The company, which is controlled by the Israeli-American media mogul Haim Saban, is also looking to capitalize on receiving long-awaited 4G frequencies when it starts operating 4G in a 20 MHz band in the coming days. Partner had been offering 4G in a limited capacity.

Ziv Leitman, Partner’s chief financial officer, noted that the intense competitive environment “eased slightly” in the quarter as its churn rate declined to 10.9% from 12.7% in the prior three months.

Partner operates under the Orange brand name through a long-standing licensing deal with French telecoms group Orange. In June, the two companies agreed to end that deal following an angry public dispute in the wake of comments from Orange’s CEO, Stéphane Richard, saying the company wanted to exit Israel – a remark interpreted by many as the French company’s caving in to the global boycott of Israel.

Richard later visited Israel and said Orange was committed to continuing its research and development operations in the country, but still sought to end the licensing arrangement with Partner. Partner has already received an initial payment of 15 million euros ($16.8 million) from Orange and it said it was conducting a study regarding the use of the Orange brand.