Cellcom profits fall 22% in 2005

Cell phone provider to raise prices again to compensate for lost income.

cellcom logo 88 (photo credit: )
cellcom logo 88
(photo credit: )
Cellcom reported a 22 percent drop in profits for 2005, as it continues to feel the pinch of the government's order to reduce interconnect fees for calls made between cellular networks. To compensate for their loss in revenue from the move, Cellcom published a notice to its customers in the media this week, saying it would raise air time rates in the coming days by 1 percent. "The decline in earnings is evident of our decision to raise prices slowly and only in reaction to market forces, mainly the reduction in interconnect tariffs, which significantly harmed profits last year," said Amos Shapira, CEO of Cellcom in a press release. Net profit for 2005 was NIS 483 million, down from the NIS 616.7m. reported in 2004, while revenue declined 9% to NIS 5.11 billion from NIS 5.59b. Earnings before interest, tax, depreciation and amortization (EBITDA) dropped 14% to NIS 1.64b., while operating profit fell 26% to NIS 702m. Cellcom's earnings decline follows similar drops by competitors Partner and Pelephone, which also attributed the falls to the interconnect fee cut. The Communications Ministry has embarked on a program to reduce, in stages, the fee charged by one cellular phone operator to complete the call of a rival from 45 agorot to 22 agorot by 2008. The first cut from 45 agorot to 32 was made in March 2005 and a further reduction to 29 agorot was implemented at the beginning of this month. The price hikes Cellcom implements this week will impact approximately 20% of its customers. It is the second price hike the company has introduced this year. All three cellular companies announced rate increases towards the end of last year to compensate for the March interconnect fee cut. "The price increases are a natural reaction for the cellular companies as they're in business and have to make money," said Miko Mor, an analyst at Gaon Investment House. "Ultimately, [the interconnect fee cut] is an attempt by the Communications Minister to make the market more streamlined and efficient for the consumer." Cellcom is 90% owned by Discount Investment Corporation, controlled by Nochi Dankner's IDB Group. Cellcom said this week it would distribute a NIS 1.7b. dividend to its shareholders, to help Discount pay off a $660m. loan it took to buy the company. It was the second large dividend announcement made by the company this year.