Sources inform "Globes" that Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) has notified some of its suppliers that it intends to postpone its payments to them. Partner and Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) share prices plummeted following the announcement.
Partner last week reported a decline in its cash flow, and announced that it was considering a change in its payment method by reducing the number of its payments for end equipment, which currently stands at 36. A similar measure by the other major cellular companies cannot be ruled out.
Communications market sources said that Partner had notified various suppliers that would make payments to them on the basis of the end of the current month plus 123 days, instead of the end of the current month plus 30 days. The company said, "We are equalizing the terms for all of our suppliers, in line with the entire sector."
Partner's announcement does not augur well. The cellular market in Israel is suffering from an extreme imbalance, and the veteran cellular companies are facing unreasonable competition from the new operators, especially Hot Mobile Ltd. and Golan Telecom Ltd.. These two companies are producing the same product, one minute of cellular airtime, at a price far below what it costs the veteran companies to produce it.
The reason is that the Ministry of Communications has exempted Hot Mobile and Golan Telecom from the need to set up cellular networks, and is allowing them to consolidate networks with the veteran companies. These networks should be joint cellular networks with equal investments. In reality, however, the new companies are paying very little for the access they are being granted to the joint network.
A growing imbalance has therefore been created that is worsening the state of the veteran companies, which are having trouble selling at the same price as the new companies. The new operators are dogging the older companies' footsteps and taking tens of thousands of subscribers away from them.
Golan Telecom is also not selling end-user equipment at all, and Hot Mobile is selling far less than the amounts sold by the veteran companies. Subsidizing these sales is an expense that is now having a dire effect on the companies' cash flow.
Last week, "Globes" revealed another aspect of the problems in the cellular market. The older companies have greatly slowed the pace of their investments and deployment in 4G networks. Contractors and suppliers report that some of the companies have completely halted these investments. In any case, in the current state of affairs, the companies are unable to continue financing their current activity at the prevailing price level in the sector. This means that the veteran companies will have to undertake the extremely difficult measure of cutting personnel, investments, and new deployment for the rest of the year.
Published by Globes [online], Israel business news - www.globes-online.com - on March 15, 2015
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