While Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) and Pelephone Communications Ltd. responded tentatively to the cut in interconnect fees, saying that they would consider what steps to take, Israel's third mobile carrier Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) released an announcement today warning of a hit to profits in the hundreds of millions of shekels in the first year of the reduction.
"Lower interconnect fees will have a material impact on company results," warns Cellcom. The company warns of a NIS 420 million cut in EBITDA (earnings before tax, interest, depreciation and amortization) and a NIS 320 million fall in net profit following the first reduction in interconnection fees.
Minister of Communications Moshe Kahlon has announced a cut in interconnection fees (charges for calls between different mobile telephony networks) of 73% to NIS 0.068 from 2011, and a further, gradual reduction to NIS 0.055 by 2014.
"The company cannot predict the actual indirect adverse effects the reduction would have on the company's results, including from fewer calls being made as subscribers switch to landline and callback services," Cellcom said in its announcement. Cellcom also warned of other regulatory changes, such as the entry of virtual operators (MVNO), that will bring price competition in the market.
Cellcom says it will take steps to deal with the new environment, including "cost reduction", implying layoffs. However, the company emphasizes that it "cannot assure that these will be successful."
As expected, the company said that after studying the material, it may petition the High Court against the decision of the Ministry of Communications to reduce interconnect fees.
Published by Globes [online], Israel business news - www.globes-online.com - on September 2, 2010
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