The number of prepaid customers at Partner Communications, Israel's second largest mobile operator, fell for the first time in Q2 2007 ending the quarter at 0.78m. In each of the last six quarters Partner has managed to marginally improve the quality of its customer base, helped by the growth of 3G services which are only available with a contract. At the end of June 2007, 71.4% of Partner's customers were contracted, against 70.3% at the end of June 2006. Overall growth was just 1.1% in the second quarter of 2007 - the lowest since the 1.0% recorded in the same quarter last year - as customer numbers increased by 30k to 2.73m. However, 3G customer numbers rose by a further 19.2% in the three months to June to just short of 0.4m, which is equivalent to 14.5% of the total customer base and implies a fifth successive decline in the size of the 2G GSM base to 2.34m.

Three months ago, we remarked on the trend in the voice minute usage of Partner's customers and noted that average minutes per user (AMPU) rose to an all-time high of 323 per month. In this latest quarter, that record was beaten again, as customers talked for an average of eight additional minutes per month. Unlike in Q1 2007, this boosted the company?s ARPU, the average spend per customer rising from NIS153 per month in the March quarter to NIS157 per month in the latest period. This had the consequence of leaving average revenue per minute (ARPM) almost flat at NIS0.474, the rate having dropped sharply in the first quarter to below NIS0.5 for the first time. The company reminds us that a 10% cut in interconnect rates was imposed by the regulator on 1st March 2007; without it, the ARPM would almost certainly have risen in the second quarter of the year, as it did, curiously, in the same quarter last year - again against the trend.

Year on year ARPM was 8.1% down, but AMPU was 7.9% up, leaving ARPU only marginally down from NIS158 per month last year. However, given that there was a 5.7% increase in the size of the customer base, service revenues finished 5.1% higher year on year at NIS1.308bn in Q2 2007 after NIS1.245bn in Q2 2006. Of the NIS63m uplift in the top line, NIS39m (or 61.7%) was down to data services, as revenues from non-voice rose almost 32% year on year to NIS162m, increasing as a proportion of total service revenues from 9.9% to 12.4%. The cut in voice termination rates almost certainly had a part to play here in boosting the importance of data, although the increased penetration of 3G services is obviously the more significant long-term influence on the trend.

The shift to 3G is of course largely a function of the availability and price of handsets which support the technology, and the increased volume of 3G handsets sold has given Partner an additional boost to its top line - equipment revenues rising as they did by almost 25% year on year, sending total revenues 6.9% higher to NIS1.47bn. However, the sale of 3G handsets is also a more costly business and none of the benefit of the higher turnover was felt further down the P&L. That said, EBITDA was up 9.7% between Q2 2006 and Q2 2007, improving the margin from 34.5% to 35.4%, although the detail reveals that this was due to a one-off credit of NIS24m in Q2 2007. Without this exceptional item the EBITDA increase would not have matched that of the top line and the margin would in fact have decreased to 33.8%.

Posted to the site on 8th August 2007

Posted to: www.cellular-news.com/story/25310.php