Partner Faces Tumultuous Times
Partner Communications (NAS: PTNR) , the Israeli mobile phone operator, came out with a disappointing drop in third-quarter income as it witnessed high customer turnover, lower-than-expected revenue growth, and lower inflows on account of reduced interconnection tariffs. Let's take a closer, Foolish look at how Partner is faring.
Figuring it out
The company's consolidated revenue for the third quarter rose to the equivalent of $472 million, an increase of 6% from the previous year's quarter. However, this revenue figure includes the company's acquisition of 012 Smile. Organic revenue declined 11% to $392 million.
Division-wise, Partner's service revenue saw a decline of 6% to $363 million, but organic service revenue was worse off with a 25% decline. This was mainly caused by intense competition and regulatory changes that brought a 71% reduction in interconnect voice rates and a 94% reduction in interconnect SMS rates that went into effect Jan. 1, 2011.
On the bright side, this decline was partially offset by higher revenue from the growth in Partner's mobile subscriber base and higher inflows from content and data services. Partner's equipment revenue was a bright spot that saw revenue almost double to $104 million on account of an increase in smartphone sales.
Lower revenue and interconnect tariffs along with higher interest expenses contributed to Partner's disappointing net income, which fell by 44% and stood at $47 million.
Partner's rivals were not in good shape either. Cellcom Israel (NYS: CEL) also saw third-quarter profits tumble 40% to $53 million, which was also caused by lower interconnect charges and a greater degree of competition.
Partner Communications has seen some positives as well as some negatives lately. On the positive side, the company has seen a good deal of top-line growth over the past two years led by its growing subscriber base. During the quarter, Partner added about 26,000 subscribers, effectively increasing its total subscribers by 2.2%.
However, Partner hasn't been too lucky with its bottom-line figures, which have been shrinking lately. Competition has also intensified because of lower interconnect tariffs. However, Partner seems to have come up with a quick-fix plan: layoffs.
Pink slips galore
In early November, Partner announced plans to lay off more than 1,000 employees over the next year as it tries to fix its financial problems. The company has confirmed this as part of its plan for an efficient future, albeit with fewer employees.
The layoffs might be a necessity for the company considering the stiffer competition in 2012, when a number of new full-service and mobile network operators will enter to grab their share of the Israeli telecom pie. Partner's $1.25 billion in net debt does not make matters any better.
The Foolish bottom line
The fact that Partner will face further competition in the months to come makes me feel wary about investing there. Moreover, Partner is hit hardest by the lower interconnection tariffs. The only bright spot is its growing revenue, which could very well be a short-term trend. So what do you Fools think about Partner? Let us know by leaving your comments in the box below. And don't forget to add Nuance to your very own watchlist. It's free and helps you stay on top of the latest news and analysis for your favorite companies.
At the time this article was published Fool contributor Keki Fatakia does not hold shares in any of the companies mentioned in this article.Motley Fool newsletter serviceshave recommended buying shares of Cellcom Israel. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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