Cell Phone Competition Cuts Bezeq First-quarter Profits

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Bezeq reported a smaller-than-expected decline in quarterly profit on Monday but faces a tough year as the price war in the mobile phone sector enters its second year and possible competition in its fixed-line business.

The entry of six new players to Israel's mobile market this year has hammered incumbents including Bezeq's mobile arm Pelephone, where profits fell by 29% and revenue by 22.5% in the first quarter, the company said.

Regulators are also hoping to liberalize fixed-line and Internet services by creating a wholesale market, under which Bezeq, Israel's largest telecoms group, has agreed to give its rivals access to its broadband infrastructure in return for license concessions. That carries the threat of a further erosion of Bezeq's position.

But Pelephone also profited in the first quarter from the services it provides to virtual providers and the company said it was going to speed up deployment of high-speed Internet lines to businesses and homes, where it is gaining customers.

"We continued to develop our advanced next generation network which has turned into a growth driver," CEO Stella Handler said. "We will continue to invest in advanced infrastructures and customer service."

Investors are worried by talks between Israel's electricity utility and a group led by Sweden's Viaeuropa to create a competing high-speed network, which could be finalized in the next month.

But Monday's results served to emphasize Bezeq's advantages as an incumbent. Its shares closed 1.3% higher in Tel Aviv Stock Exchange trading.

"We believe recent headlines around the ... project have been weighing on Bezeq's share but believe its long-term merit remains to be seen," said UBS analyst Roni Biron.

Bezeq earned NIS 497 million in the first quarter, down from NIS 582 million a year earlier, as revenue slipped 12.2% to NIS 2.41 billion. It was forecast in a Reuters poll to earn NIS 442 million on revenue of NIS 2.41 billion.

The company was helped by lower financing expenses and capital gains from the sale of real estate and copper, which it buys in bulk to use in telecoms lines. While Pelephone's revenue and profits were well down, the operator – Israel's third largest – saw its subscriber base slip less than 5% to 2.741 million.

"Bezeq ... is showing remarkable stability in such a competitive market and clearly its dominance in the fixed line market is helping it to weather the cellular storm," said Gilad Alper, an analyst at the Excellence Nessuah brokerage.

Bezeq reaffirmed its 2013 forecast of NIS 1.7-1.8 billion in net profit and earnings before interest, tax, depreciation and amortization of NIS 4.25 billion and NIS 4.35 billion. It will pay a quarterly dividend of NIS 861 million plus a special dividend of NIS 500 million.

Bezeq headquarters in Tel Aviv.Credit: Bloomberg

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