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Cellcom Israel Warns of Impact from Lower Termination Rates
Cellcom Israel's CEO, Ami Erel has warned that the government's planned cut in mobile termination rates will have a greater than expected impact on the company's profits.
At a press conference, Erel said, "The current average in Europe is NIS 0.35, and the lowest country is Sweden, with a connectivity fee of NIS 0.17. Does anyone think that the system can digest this? A reduction to NIS 0.04? Connectivity fees aren't a magic number, it isn't an agenda, it's necessary to compensate the company for the cost, and this is a number that should be set through an economic calculation."
"I can't remember any such thing in any industry of an 84% reduction in a single move." he added.
In a recent statement, the company said that it intends to take measures to mitigate as much as possible expected adverse effects of such proposed changes but cannot assure that these will be successful.
If the changes as currently proposed are adopted, they are expected to have a material adverse effect on the company's results. Such adverse effects include both the direct effect of the proposed reduction and anticipated loss of outgoing cellular calls (which may occur due to an arbitrage gap created under the proposed tariff in favor of landline alternatives, including through the usage of landline based "callback" services), as well as other effects of the proposed reduction in interconnect tariffs, such as facilitating the entry of MVNO's to the market.
Bank of America has downgraded shares of Cellcom Israel from 'Buy' to 'Neutral' following the notification of the rate cuts from the Ministry.
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