Date:09/08/11

Cellcom Israel Q2 net slumps 25% on service revenue decline

Cellcom Israel Ltd.'s second-quarter earnings slumped 25% as the Israeli cellphone-service provider saw its top line weighed down by a reduction in service revenue. Shares were off 4.6% to $22.81 in premarket trading as earnings missed analyst expectations. Cellcom has lately struggled with the impact of regulatory changes that took effect earlier this year. Last month, Citigroup cut Cellcom's stock to sell from hold, citing a tough operating environment that it believes will only intensify in the year ahead. "As we previously expected and reported, the reduction of interconnect fees and the continued price erosion had an adverse effect on our service revenues and profitability and we estimate that they will continue to affect our results," Cellcom Chief Financial Officer Yaacov Heen said Monday. Cellcom reported a profit of NIS244 million ($71 million), or NIS2.45 a share (72 cents a share), down from NIS326 million, or NIS3.28 a share, a year earlier.
Revenue slipped 6% to NIS1.59 billion ($465 million), due primarily to lower service revenue. Analysts polled by Thomson Reuters expected earnings of NIS2.58 on revenue of NIS1.57 billion. Gross margin edged down to 49.4% from 50.4%.Monthly average revenue per user, a key telecom gauge, slid 26%. Cellcom ended the quarter with 3.4 million subscribers, up from 3.3 million a year earlier.

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