Cellcom Israel Q1 net falls 44% on price erosion


Cellcom Israel Ltd.’s first-quarter earnings fell 44% as increased competition continued to drive down prices, a trend the Israeli cellular provider expects to continue and perhaps escalate.

In response, Chief Executive Nir Sztern said the company intends to implement additional cost-saving measures, which it estimates will only partly compensate for the decrease in revenue.
Cellcom saw its service revenue decline over the past year as a reduction in interconnect tariffs lowered the amount of interconnect fees its collects from other local operators. The company is also battling ongoing airtime price erosion due to increased competition in the market. Cellcom in March said it would cut headquarters positions and improve work processes in an effort to reduce expenses and increase efficiency.
Cellcom reported a profit of NIS173 million ($47 million), or NIS1.74 a share (47 cents), down from NIS306 million ($82 million), or NIS3.09 a share (83 cents), a year earlier.
Revenue was roughly flat at NIS1.85 billion ($427 million).  Analysts polled by Thomson Reuters had most recently forecast earnings of NIS1.09 a share on revenue of NIS1.71 billion.  Gross margin fell to 43.3% from 52.7%.
Service revenue decreased 1.6% as increased competition drove down prices, while equipment revenues increased 4.5%. Cellcom added 57,000 net subscribers during the quarter. Total churn, or customers who cancel services, was 6.3%, compared with 7.1% a year earlier. Monthly average revenue per user, a key telecom gauge, fell 21% as prices eroded. Shares closed Monday at $10.45 and were mostly inactive premarket. The stock has fallen 38% since the beginning of the year.