Have Israel’s Cellular Companies Maximized Their Efficiency Gains?

Shares of Cellcom and Partner have enjoyed growing investor confidence, rising about 60% in the past year, driven by cost-cutting initiatives and the anticipated revenue boost from 5G. The question now is whether this upward trend will continue and how technological advancements, particularly the ongoing fiber-optic rollout, will shape their future performance.

Partner’s Earnings: A Payout After 13 Years

On Sunday, Partner reported its 2024 earnings. Revenue dipped slightly by 1% compared to 2023, but excluding the reduction in interconnect fees (which were cut in June 2023), revenue actually grew by about 4%, reaching 3.094 billion shekels. At the bottom line, net profit surged 70% to 277 million shekels. The standout announcement? Partner is resuming dividend payments for the first time in 13 years.

"The main story in Partner’s report is the dividend. After years of anticipation, they announced a 250-million-shekel payout. While they haven’t formalized a dividend policy, it's clear this isn’t a one-off event. They have the financial strength to continue distributions," said Sabina Levy, head of research at Leader Capital Markets, in a conversation with Bizportal.

Levy noted that Partner's results were largely in line with expectations. "There were no major surprises. My estimate was 65 million shekels in Q4 net profit, and they reported 80 million shekels—mainly due to a reduction in provisions for doubtful debts," she explained.

Looking ahead, Partner didn’t provide guidance on revenue or profit but did project a continued decline in capital expenditures—a positive trend for cash flow. "Lower capex means stronger free cash flow. At the same time, they emphasized that they’re not cutting essential investments—so they’re managing costs without harming operations," Levy added.

Investors Look Ahead: Will 5G Drive Revenue Growth?

The market isn’t focused on last quarter’s numbers—it’s looking ahead to the next revenue catalysts. One major factor? How quickly will 5G adoption translate into higher revenues?

Earlier this year, Israel’s telecom companies made pricing adjustments for 5G plans, enabling them to charge higher rates that could boost both revenue and profitability. However, Levy cautions that this is a gradual process and won’t deliver immediate gains.

“These changes primarily affect new customers, not existing ones. Just because a new price is published doesn’t mean current subscribers will be automatically migrated to it. This transition takes time," she explained. "We might see increased customer movement between providers in Q1 2025, since not all companies raised their prices at the same time. But I doubt we’ll see significant ARPU growth (average revenue per user) this year from these changes alone."

One external factor that could boost ARPU in 2025? The end of the war and a return to normal travel patterns. Increased air traffic at Ben Gurion Airport could drive up roaming revenues, but Levy stressed that this would be due to volume, not price hikes.

The Fiber Revolution: A Key Efficiency Driver

Another major factor shaping the sector’s future is fiber-optic expansion.

"We’ve already seen its impact in 2024, and it will continue into 2025. Telecom companies are shifting customers from the wholesale broadband market to their own fiber infrastructure, which they acquire at lower rates through agreements with infrastructure providers. This leads to cost savings and supports profitability," Levy explained.

Additionally, companies are improving cost structures across the board. "There’s no single dramatic move, but rather a combination of initiatives that will gradually improve results. One longer-term game-changer could be potential TV market agreements—but these are still under review by the Israel Competition Authority. If approved, they could enhance profitability, but that wouldn’t materialize until 2026."

Investment Outlook: Are Telecom Stocks Still a Buy?

So, after all this, should investors buy telecom stocks?

Levy remains bullish on the sector, rating it overweight. "We see gradual, consistent improvements in results and cash flow. Unlike other sectors facing high uncertainty, telecom is less exposed to macroeconomic risks and interest rate fluctuations—making it a defensive play in uncertain times."

That said, she cautioned against expecting another 60% rally. "Telecom stocks have already surged in the past two years. While the outlook remains positive, investors shouldn’t assume we’ll see a repeat of those sharp gains."