Cellcom cuts infrastructure investment 25%

Nir Sztern  picture: Tamar Mitzpi

The Israeli telecom operator is pinning its hopes on lower costs as a result of its new fiber-optic infrastructure.

Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) is planning a major cut in its investments, and is redirecting its resources from mobile telephony to landline telephony and television, CEO Nir Sztern said in a briefing for Leader Investment Group executives. Sztern stated that Cellcom would cut its NIS 600 million investment budget by NIS 150 million. He predicted that the investment in the IBC fiber-optic venture would save the company NIS 100 million in its investment budget, and the rest would be deducted from its other spheres of activity, primarily mobile telephony.

One of the main challenges facing Cellcom's management is rescheduling the company's debt. Cellcom's cash flow is dwindling and approaching negative territory, making it virtually impossible for the company to manage its NIS 2.5 billion debt. Cellcom's management is jumping through hoops to maintain the appearance of normality and a positive cash flow in the face of the virtually impossible constraints in which it is operating. This is the background for its meetings with capital market concerns.

Some of the parties present at the meeting believe that Cellcom has no intention of getting involved with 5G technology at this stage, although other sources said that Sztern had not explicitly stated this. Investments amounting to NIS 450 million annually, which because of accounting standards include commissions for agents and marketers, rent for sites, and various other financial elements, among other things, do not exactly presage investments in large-scale projects. It is more likely that Cellcom will leave 5G alone for the time being.

It is worth noting that Cellcom never saw itself as being in the forefront of technology in matters such as mobile surfing speeds in Israel. The company always stressed that what was important was to provide its customers with a good surfing experience, without constantly rechecking its speed.

Sztern added that he expected the company to achieve a positive cash flow before interest of NIS 200 million annually. This is probably directly linked to the decrease in investments. Cellcom believes that as it deploys more fiber-optic infrastructure, it will be able to recruit more customers who are currently using infrastructure of Bezeq and Hot in the framework of the wholesale market. If this happens, it will cut Cellcom's costs considerably.

Sztern also commented on the fact that the IBC fiber-optic venture, in which Cellcom holds 35% (Israel Infrastructure Fund owns 35% and Israel Electric Corporation owns 30%) is taking steps to raise capital in order to finance future investments. The venture plans to deploy its infrastructure in one million homes within three years. Some of those present at the meeting came away with the feeling that Cellcom was planning to reduce its holdings in the venture and bring more investors into it. It is important to note that Cellcom's deal with IBC has not yet been completed. Cellcom is awaiting final approval from the Ministry of Communications in order to close the deal, which will probably be forthcoming within a few days.

Cellcom tried to promote a cooperate venture with Partner in IBC in the belief that the two companies would be able to deploy fiber-optic infrastructure more quickly by working together than by each working on its own. Cellcom also tried to coordinate deployment with Partner, so that the two companies would not have to each deploy fiber optics in the same buildings. Partner rejected both proposals, focusing instead on separate deployment.

What this means is that the two companies are working in the same buildings, competing with each other, and becoming very aggressive. The reason is that they are both offering the same surfing performance, and the difference between their products boils down to television, where there is a big difference between the services.

In the background, the Ministry of Communications is trying to find a solution for joint deployment in buildings. The ministry wishes to avoid the deployment and maintenance costs of two parallel fiber optic infrastructure systems, even before Bezeq and Hot get into the act.

Published by Globes, Israel business news - en.globes.co.il - on July 16, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Nir Sztern  picture: Tamar Mitzpi
Nir Sztern picture: Tamar Mitzpi
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