Cellcom Overcomes Device Sales Decline with Strong Communication Service Revenues, Faces Legal Setback

Cellcom, a prominent player in the telecommunications industry, showcased resilience in the face of a global slowdown in mobile device sales. The company's strategy of focusing on communication services, including mobile, television, and internet subscriptions, paid off as revenues in these sectors compensated for the decline in device sales. However, a legal challenge dampened its net profit growth.

In the second quarter of the current year, Cellcom reported total revenues of NIS 1.07 billion, which remained nearly unchanged from the NIS 1.069 billion generated in the same period last year. This stagnation was primarily attributed to weakening sales in the terminal equipment sector, aligning with the broader trend of declining device sales globally.

Notably, revenue from equipment sales in Q2 2023 saw a significant 18% drop to NIS 247 million, compared to the corresponding period last year (NIS 53 million). On the other hand, revenues from subscriptions across all business segments exhibited a promising growth, climbing by NIS 54 million – a 7% increase – to reach NIS 823 million.

The company's strategic emphasis on subscription services bore fruit, with gross profit for Q2 2023 rising by 4% to NIS 337 million compared to the same period in the previous year. However, a provision of NIS 42 million for an ongoing class action lawsuit related to alleged illegal price hikes for base packages had a profound impact on net profit. This provision resulted in a sharp net profit decline of 88% to NIS 5 million, compared to the second quarter of 2022. Excluding this legal provision, Cellcom's net profit was NIS 37 million, a modest NIS 2 million less than the corresponding period last year.

In a broader view of the first half of the year, Cellcom's revenues reached NIS 2.151 billion, marking a robust 12% increase over the same period in the previous year. Service revenues for the first half of the year stood at NIS 1.6 billion, demonstrating a commendable 6% growth despite the global slump in mobile device sales. However, revenues from services in the first half were NIS 533 million, representing an 11% decline compared to the corresponding period last year.

Cellcom's core business revolves around mobile subscribers. The company's revenues from cellular subscribers during Q2 2023 amounted to NIS 511 million, reflecting a promising 4.5% growth compared to the same period in the prior year. This revenue surge was attributed to both an increase in subscribers and a rise in average revenue per subscriber (ARPU). The company, helmed by Daniel Sapir, reported a subscriber base of 3.487 million in Q2 2023, marking a 4% increase from 3.346 million subscribers in the same period in 2022.

The ARPU witnessed a modest increase, with the average income per customer reaching NIS 38.2 – a slight uptick from the previous year. This boost was driven by the addition of subscribers to 5G packages and the stabilization of the fiercely competitive cellular market, which had seen cutthroat competition in recent years. Notably, the subscriber churn rate, a measure of customer attrition, saw a marginal increase to 7.2%, up from 7% in Q2 2022.

Expanding its foothold in the landline sector, particularly in the realm of optical fibers, Cellcom reported robust revenue growth of 8.1% in Q2 2023, amounting to NIS 410 million. This growth was primarily fueled by an influx of fiber optic subscribers, as the company continues to strengthen its position in wired internet, television, and telephony services.

The company's internet subscriber base reached 334,000 customers in Q2 2023, marking a healthy 5.6% growth over the previous year. Notably, the adoption of fiber optics surged significantly, with Cellcom boasting 219,000 fiber subscribers – a remarkable 35% increase from the end of Q2 2022. In the television broadcasting segment, subscriber numbers also climbed, reaching 260,000 customers in Q2 2023, compared to 255,000 in the corresponding period of 2022.