UBS Communications Analyst Roni Biron published a position paper this morning, in which he predicts that Israel's mobile market will face a difficult year, due to the continued competition in the market. Biron says that there is an inherent problem in the mobile market, which will not be solved so long as the Ministry of Communications does not allow mergers, so there will be fewer operators.
The problem, according to Biron, is that there are too many players in the market, and another problem is that Golan Telecom Ltd. pays a fixed price to Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) for use of its infrastructures - which allows it to continue to be aggressive with pricing - "And I don't view this as a temporary phenomenon,"says Biron.
Biron maintains a "neutral" recommendation for Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) and Cellcom, due to the drop in share prices, which have reached a low level. "We should take positive note of the companies' abilities to generate cash flow and reduce debts," says Biron. "They invested more in end-user equipment, and improved their margins on it, and there will be a reduction in costs for Partner and Cellcom as a result of infrastructure-sharing, so not everything is bad. I believe that the wholesale market, not necessarily television, but Internet and telephony will bring them revenue."
Answering the question of why he did not issue a "buy" recommendation, Biron said, "I think that, in the end, the price race will not end so long as the Ministry of Communications does not allow a number of players to merge. It looks like we will see continuing pressure on subscriber prices in the coming quarters, and the ability to reduce costs and minimize working capital is becoming exhausted."
Published by Globes [online], Israel business news - www.globes-online.com - on November 19, 2014
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