There is no doubt that consumers will benefit quite a bit by the reduction in inter-network connectivity fees, while Israel's wireless carriers - Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR), and Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) subsidiary Pelephone Communications Ltd. will lose quite a lot.
The three operators' profits will plummet if and when the Ministry of Communications decides to cut the inter-connectivity fees, and the capital market has already decided that the decision is final.
A study by "Globes" found that, in March, from the moment it was reported that NERA Economic Consulting, hired by the ministry to examine the issue, was recommending to slash the inter-connectivity fees from the current NIS 0.25 per minute to less than NIS 0.05 per minute, the aggregate value of the three mobile operators has fallen by NIS 7.1 billion ($1.9 billion).
In the case of Cellcom, the loss in market cap is 11.6%, amounting to $410 million (NIS 1.5 billion); Partner's market cap has fallen 11.6%, amounting to $415 million (NIS 1.6 billion); and Bezeq's market cap has fallen 5.1%, amounting to $1.1 billion (NIS 4 billion).
For the sake of comparison, the Tel Aviv 25 Index, where all three companies are listed, has fallen 4.8% over the same period, and the Tel Aviv 100 Index has fallen 4.3%.
The three mobile operators today announced that the Ministry of Communications notified them yesterday that it was considering changes to the regulations which set inter-connectivity fees, and disclosed how the changes would affect them.
Pelephone said, "The company cannot estimate today with certainty the full effect of the change over time. However, the company believes that if the policy outlined is implemented in full, it is liable to have a materially adverse affect on operating results."
Cellcom disclosed figures in its announcement, saying, "If the changes as currently proposed are adopted, then, absent any efforts to mitigate the expected loss of revenues, the currently proposed changes are expected to have a monthly adverse effect estimated at this stage to amount to approximately NIS 35 million on the company's EBITDA and approximately NIS 25 million on the company's net income, from August 2010." The loss to net profit amounts to NIS 300 million per year.
Cellcom said that it "intends to take measures to mitigate as much as possible the expected adverse effects of such proposed changes, through revenue enhancement as well as cost reduction." It added, "The company intends to object strongly to the proposed changes but cannot predict the ultimate outcome of such objections."
Partner said that if the proposed pricing tariffs are adopted, "it may have a material adverse affect on the company's revenues and profits."
The three operators' aggregate revenue was NIS 18 billion in 2009 and their aggregate net profit was NIS 3.2 billion, figures which underscore their standing as cash cows of the Israeli economy.
Partner's share price fell 2.3% at the opening on Nasdaq today to $17.93, giving a market cap of $2.77 billion, and Cellcom's share price fell 1.8% on the NYSE to $28.33, giving a market cap of $2.8 billion. Partner and Cellcom's share price both fell 3.7% on the TASE today, although Bezeq edged up 0.1%.
Published by Globes [online], Israel business news - www.globes-online.com - on May 5, 2010
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