Matav-Cable Systems Media Ltd. Announces First Quarter 1999 Results

Business Wire, May 19, 1999

NETANYA, Israel--(BUSINESS WIRE)--May 19, 1999--

Revenues Grew By 10% Negotiations Continue To Determine

Competitive Environment

Matav-Cable Systems Media Ltd. (NASDAQ: MATVY) today announced results for the first quarter ended March 31, 1999.

Revenues for the first quarter increased by 9.8% to New Israeli Shekels (NIS) 110.1 million (U.S. $27.3 million) (a) compared to NIS 100.3 million for the first quarter of 1998. Operating income was NIS 39.3 million (U.S. $9.7 million), an increase of 2.3% compared to NIS 38.4 million for the same period a year ago. Net income before the Company's share in the losses of associated companies was NIS 26.0 million (U.S. $6.5 million), an increase of 11% compared to NIS 23.4 million for the first quarter of 1998.

The reported net loss, including the Company's share in the losses of associated companies (primarily Partner Communications Company Ltd.), was NIS 25.2 million (U.S. $6.2 million) compared to a profit of NIS 23.4 million for the same period last year. The Company's share of Partner's first quarter losses was approximately NIS 50.8 million. Net loss per ADS for the first quarter was NIS 1.84 (U.S. $0.46) versus income of NIS 1.72 last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) was NIS 59.4 million (U.S. $14.7 million), an increase of 1.9% compared to NIS 58.1 million for the first quarter last year.

As of March 31, 1999 the Company had increased the number of homes passed to 389,776 and subscribers to 274,704. This represents a penetration rate of 70.5% compared to 70.6% at the end of 1998.

During its first quarter of operation, Partner Communications Company Ltd. ("Partner") accumulated more than 100,000 subscribers. Partner is the third Israeli mobile cellular telecommunication services licensee in which Matav indirectly holds a 20.3% share. Partner's revenues for the first quarter were NIS 91.5 million, resulting in a net loss of approximately NIS 249 million. The losses reflect, among other things, a faster rate (compared to the original plan) of attracting subscribers, and the faster buildout of the network and infrastructure. As previously reported, the losses at Partner are expected to be significant during the initial years of operations. Matav anticipates that its share in the losses in Partner will significantly exceed its profits from other activities throughout 1999.

Barak ITC (1995), one of three Israeli providers of international telephone service, in which MATAV holds a 10% share, continues to progress according to its strategic plan. It is focused mainly on developing telecommunications services packages combining telephony, Internet and data communications for different market segments. Barak's first quarter revenues increased by 36% to NIS 90.7 million as compared to the first quarter of 1998, while its net loss narrowed by 38% to NIS 34.2 million. Since Matav records Barak's results on a cost basis, the losses have no impact on Matav's reported results.

Since the end of the quarter, the Company has been involved in intensive negotiations with the Ministry of Communications ("MOC") and other governmental agencies regarding the competitive environment for Israel's cable TV, telecommunications, and other services. On May 11, the Company, together with the other CATV operators, reached an agreement with the MOC, the Council of Cable and Satellite Broadcasting ("the Council"), representatives of the Finance and Justice Ministries, and the Commissioner of Restrictive Trade Practices. The parties agreed on certain points, as reported on May 12, 1999, including a "tiering window" (a period of time during which CATV operators will be prevented from providing tiering services, while DBS operators will be allowed to do so), extensions to CATV operator licenses, the granting of Pay Per View, Internet, and telecommunications service licenses, and other ownership and exclusivity issues pertaining to the content market.

Soon after, the Direct Broadcast Satellite ("DBS") operator which had been granted a license to provide DBS services announced that it no longer wished to offer DBS broadcasting, and planned to return its operating license to the MOC.

On May 12, the Council informed the Company that it had become convinced of the importance of a substantial "tiering window" and of an appropriate arrangement regarding the content market. The Council appealed to the cable operators, DBS operators, and State representatives to reach an agreement and to present a joint proposal as soon as possible. The Council noted that if the parties could not produce a joint proposal, it would determine its policy on the issue.

On May 13, the Company was notified that the Council had held an additional meeting. The Council decided that the "tiering window" should be opened at the start of commercial DBS services, and should extend either for 18-27 months, or until DBS operators accumulated 250,000 subscribers - whichever came first. In making this decision, the Council did not address other areas of dispute between the cable operators and the regulatory authorities. According to the decision, the Council will soon discuss the details that relate to its decision, including among other things, special arrangements as to the smallest cable TV operator (Matav). The Company is currently examining the validity of the decision and its implications.