Bezeq 2025: Operations Are Strong, but the Big Profit Number Tells Only Part of the Story

Company Introduction

At first glance, Bezeq still looks like a simple story: a legacy telecom incumbent with fixed-line infrastructure, mobile, internet, television, and a large dividend stream. That is too flat a reading. In 2025, Bezeq is really a group trying to move from an investment-heavy infrastructure phase into a value-harvesting phase, and the core question is no longer only how much EBITDA it produces, but how much of that value is actually reachable by shareholders after regulation, structural separation, debt, and distributions.

What is working right now is fairly clear. Core revenues rose 3.0% to NIS 7.96 billion. In fixed-line, core revenues rose 3.7% to NIS 3.94 billion, fiber deployment reached roughly 2.95 million homes passed, and active fiber subscribers moved above the one million mark. Pelephone delivered its strongest year in a decade, with service revenues of NIS 1.48 billion and adjusted EBITDA of NIS 782 million. Even yes no longer looks like a steadily deteriorating asset: revenue rose to NIS 1.30 billion, adjusted EBITDA rose to NIS 218 million, and the migration to IP continued.

But that is exactly where the headline can mislead. The biggest number in the report is not necessarily the most important one. Reported net profit rose to NIS 1.42 billion, and adjusted net profit climbed to NIS 1.66 billion. That looks like a breakout year. Yet once valuation gains and impairments are stripped out, the picture becomes far less dramatic: comparable net profit fell to NIS 1.09 billion, down 2.2% versus 2024, and comparable EBITDA rose only 1.5% to NIS 3.74 billion. That is no longer a clean earnings jump. It is an operating improvement year with a thick accounting layer that makes the headline look bigger.

That is why the active bottleneck at Bezeq today is not demand, and not access to capital markets. The bottleneck is value realization. Fiber is working, Pelephone is improving, yes is stabilizing, but the group's full value still does not move cleanly to the shareholder layer. Structural separation is still in place, a yes merger still depends on regulation and labor alignment, and management has already shifted into a more aggressive capital-return stance before all those frictions have been cleared.

That is also the right early screen. At the start of April 2026, market cap stood at about NIS 21.4 billion and daily trading turnover was roughly NIS 46.7 million, so this is not a story about trapped value inside an illiquid stock. Short interest is also almost nonexistent, with short float at just 0.01% and SIR at 0.05. In other words, the market is not arguing about whether Bezeq is fundamentally strong. The debate is about earnings quality, the timing of value realization, and how much room is really left for distributions alongside investment, regulation, and open strategic options.

Bezeq's Economic Map

Events And Triggers

The first trigger: the ownership structure changed materially. B Communications sold two 160 million-share blocks in March and August 2025, then sold its remaining 441.1 million shares in November 2025, meaning its entire stake in Bezeq. That does not change the economics overnight, but it does change the context. Bezeq entered 2026 without a classic controlling shareholder, with a broader institutional base and a stronger capital-markets orientation.

The second trigger: management shifted into clearer harvest-mode language. In March 2025, the dividend policy was updated so the company would distribute 80% of semiannual profit twice a year. Alongside the current report, the board recommended a NIS 549 million dividend for the second half of 2025, and on the same day also approved a share-buyback program of up to NIS 150 million, subject to shareholder approval, expected to begin after the April 2026 general meeting and end no later than December 31, 2026. That is a positive signal of confidence. It also raises the bar for proving balance-sheet flexibility.

The third trigger: fiber moved from a deployment story to a monetization story. As of the report date, Bezeq's fiber network had already reached roughly 2.95 million homes passed, with 1.017 million active subscribers, including 637 thousand retail and 380 thousand wholesale users. At the same time, retail copper subscribers fell to 480 thousand. That means Bezeq is no longer only defending the old revenue base. It is actively moving into a new economic base.

The fourth trigger: Pelephone had a very strong year, but has not yet closed its bigger strategic step. In January 2026, Pelephone raised its offer to acquire HOT Mobile from NIS 2.1 billion to NIS 2.3 billion, subject to adjustments and further conditions, after the parties had reached commercial understandings and advanced due diligence and negotiations, but without signing a binding agreement during the initial 60-day negotiation window. That means there is strategic optionality here, but not a completed asset that can already be written into the thesis.

The fifth trigger: yes now sits at a regulatory junction, not only an operating one. In December 2025, the Tax Authority extended the tax ruling for a merger of yes into Bezeq through December 31, 2026, but again added that it may not extend it beyond that date if 2026 does not bring material progress on structural separation. At the same time, the labor dispute around an eventual integration of Bezeq and yes had still not been removed by the report date. That is an important signal: even when the operating picture improves, full value still is not completely open.

Efficiency, Profitability And Competition

The core point here is that Bezeq really did improve in 2025, but not all improvement is equal. Part of it is operating and repeatable, part of it is accounting-driven, and part of it still depends on regulation and on how much of yes's improvement can actually be turned into accessible value.

The first number that needs normalizing

Before going segment by segment, it is worth stopping on Bezeq's three profit figures:

This is not a footnote. It is the center of the story. To get from adjusted net profit to comparable net profit in 2025, NIS 543 million of yes valuation impact and NIS 27 million of impairment impact at Bezeq International were removed. So anyone reading 2025 as a clean jump in shareholder earnings is only reading half the picture.

Fixed-Line has already crossed the fiber threshold

Fixed-line remains the group's backbone, but its quality has changed. Core revenues rose 3.7% to NIS 3.94 billion, adjusted EBITDA edged up to NIS 2.60 billion, and fourth-quarter EBITDA reached NIS 667 million. At the same time, telephony revenues fell to NIS 488 million from NIS 544 million in 2024. The old decline is still there, but it no longer defines the story on its own.

The really important datapoint is not just the size of deployment, but how quickly the economics are shifting from copper to fiber. At year end, Bezeq had 980 thousand retail broadband subscribers and 493 thousand wholesale broadband subscribers. Out of that base, 637 thousand retail customers and 380 thousand wholesale customers were already on fiber by the report date. In the fourth quarter, retail broadband ARPU rose to NIS 138 from NIS 133 in the comparable quarter, and retail fiber subscribers reached 637 thousand. This is no longer only an investment story. It is the start of monetization.

What matters is that this improvement is coming from both layers at once. On one side, Bezeq is increasing retail penetration. On the other, the wholesale fiber layer is also expanding. Wholesale fiber subscribers grew 26% over the year to 380 thousand. So even when Bezeq does not own the end customer, its network is still carrying a growing part of the market.

The other side of the story also matters. Fixed-line is not making this transition in a vacuum. The Israeli broadband market remains highly competitive, the wholesale market still shapes part of the economic framework, and Bezeq itself states that other telecom groups enjoy greater bundling flexibility because Bezeq is still subject to structural separation. Put differently, fiber is proving itself. The company's ability to capture the full value from it is still not fully open.

Pelephone and Bezeq International are generating real operating improvement

Pelephone ended 2025 with its strongest service-revenue year in a decade. Service revenues excluding interconnect rose to NIS 1.475 billion, adjusted EBITDA rose to NIS 782 million, adjusted net profit rose to NIS 163 million, and free cash flow increased to NIS 143 million. That is a real growth engine, not just a stabilization story.

The operating details support that reading. Total subscribers rose to 2.677 million, postpaid subscribers increased to 2.315 million, and near the report date there were already 1.407 million postpaid subscribers on 5G plans and 166 thousand 5G MAX subscribers. ARPU also rose to NIS 46. This is a healthier mix, not just a larger base.

Something important also happened at Bezeq International. Business-customer revenues rose 2.1% to NIS 958 million, while consumer revenues kept falling to NIS 122 million. That is not random weakness. It is a business choice. Adjusted EBITDA jumped to NIS 146 million from NIS 102 million in 2024, and adjusted net profit swung to NIS 36 million from a NIS 22 million loss the year before. This unit will not determine the group's direction on its own, but it does mean the ICT and cloud layer is no longer acting as a drag.

yes improved, but has not yet crossed into the clean zone

This is probably the most sensitive point in the report. yes genuinely improved operationally. Revenue rose 2.8% to NIS 1.30 billion. Adjusted EBITDA rose 26% to NIS 218 million. TV subscribers reached 565 thousand, IP subscribers reached 492 thousand at year end and 496 thousand near the report date, yes ARPU rose to NIS 192, and fourth-quarter yes ARPU already reached NIS 200. Fiber subscribers also rose to 118 thousand at year end and 128 thousand by the report date.

But yes's bottom line is still not clean. Reported net profit jumped to NIS 485 million because of the valuation increase. Adjusted net profit, by contrast, was still a NIS 42 million loss, and free cash flow remained negative by NIS 1 million. In other words, yes is no longer where it used to be, but it is still not a clean net-profit and free-cash-flow engine that can be treated without asterisks.

The attached valuation also explains why the headline became so large. yes enterprise value rose from NIS 86 million at the end of 2024 to NIS 762 million at the end of 2025. According to the valuation, most of the bridge, NIS 622 million, came from a change in forecast EBITDA, driven mainly by contribution from the Partner agreement, the advertising agreement, updated wholesale internet-cost assumptions, and higher subscriber assumptions. Another NIS 142 million came from a reduction in the discount rate from 11.0% to 9.25%. Those assumptions may be reasonable. But they are still assumptions. 2026 will have to show that the model can become cleaner operating numbers.

Cash Flow, Debt And Capital Structure

It is important to be precise about the cash frame here. Bezeq reports free cash flow after lease payments, meaning cash from operations less net investment in property, plant and equipment and intangibles, and less lease payments. That is a useful metric, but it is not the same as full cash flexibility after dividends, buybacks, or debt service. So to understand 2025 properly, two layers need to be held together: the free cash flow the company reports, and what that means once capital return is also loaded on top.

At the reported free-cash-flow level, the picture is good but less clean than the headline implies. Free cash flow fell 10.9% to NIS 1.133 billion despite better results, partly because Bezeq Fixed-Line paid tax assessments in 2025 whereas a tax refund had been received in 2024. CAPEX also remained high at NIS 1.678 billion, or about 19% of sales. Put differently, the story is no longer as heavy as it was at the peak of the fiber buildout years, but it is still not light.

Then comes the capital-allocation layer. In 2025, actual distributions to shareholders totaled NIS 975 million. On top of that, the board has now recommended another NIS 549 million dividend and a share-buyback plan of up to NIS 150 million. It would be wrong to argue that Bezeq is being reckless without coverage. The company maintains high ratings, had no short-term bank debt as of December 31, 2025, and net debt to EBITDA stood at 1.4. But it would also be wrong to ignore the fact that distributions have already moved to a higher level precisely while full value realization at yes and regulatory easing are still not fully settled.

Another important point is that leverage looks cleaner than it really is if read through EBITDA that includes the yes valuation effect. The company's presentation states explicitly that the move down to 1.4x net debt to adjusted EBITDA also reflects higher EBITDA because of yes valuation, and that excluding that effect the ratio was similar to 2024. That is exactly the sort of detail that matters here: debt remains very manageable, but the improvement in leverage is not as clean as it first looks.

The good news is that Bezeq's financing flexibility still appears strong. The company has NIS 1.567 billion of long-term bank debt, NIS 4.276 billion of non-linked bonds, and NIS 2.399 billion of CPI-linked bonds. Ratings remained in the AA range, ilAA at Maalot and Aa2.il at Midroog, both with stable outlooks. In 2026, the company expects to pay roughly NIS 1.22 billion of principal and interest, and most of the year's funding needs have already been secured. This is not a refinancing-pressure story. It is a discipline story.

What that says about capital flexibility

The key conclusion is that Bezeq no longer looks like a company raising capital to survive, but like one deciding how to divide cash among investment, distributions, and strategic options. That is positive. It also sharpens the question of whether 2026 will look like a cleaner stabilization year from a cash point of view, or like a year in which the gap between normalized earnings, free cash flow, regulation, and strategy starts to weigh on the story.

Outlook

Before going into the engines one by one, four non-obvious points need to be fixed in place:

• First: 2026 looks more like a transition year between investment and harvesting than another earnings jump. Comparable EBITDA is expected at NIS 3.7 to 3.8 billion, essentially flat against 2025, and comparable net profit is expected at NIS 1.0 to 1.1 billion, meaning flat to slightly softer.
• Second: the decline in CAPEX to around NIS 1.6 billion is positive, but it still does not turn Bezeq into a frictionless cash story. The company is still investing, still distributing a lot, and still keeping several strategic options open.
• Third: yes has improved, but the valuation model still needs to be proven in the actual numbers. The model assumes yes ARPU of NIS 204 in 2026 versus NIS 192 in 2025, while holding the subscriber base at around 564 thousand. That is a reasonable scenario, but still only a working assumption.
• Fourth: the regulatory easing that could unlock full group synergies has still not been decided. As long as structural separation remains, part of the improvement stays trapped at the subsidiary level instead of becoming a more efficient group structure.

What kind of year is ahead

The right name for 2026 is a bridge-and-stabilization year, not a breakout year. That is not negative. After several years of fiber investment, mobile upgrades, a gradual shift to IP, and portfolio cleanup, Bezeq is now trying to show that it can preserve a high earnings base even without another accounting jump and with a lower investment load.

That is also visible in the 2029 targets. Management is targeting core revenues of NIS 8.7 to 8.9 billion, comparable EBITDA of NIS 4.2 to 4.4 billion, free cash flow after leases growing at more than 10% annually, and a roughly 14% reduction in group headcount. The strategy is clear: less network buildout, more cash harvest. But the current report also makes clear that the 2029 targets exclude the effect of structural-separation removal, mergers and acquisitions, and accounting valuation gains or losses. In other words, management itself is saying that the bigger upside still sits above the base layer.

What has to happen in each engine

In fixed-line, 2026 must prove that fiber is already large enough to keep offsetting copper decline even without unusual help from regulation or accounting. In practical terms, that means continued core-revenue growth, further retail ARPU improvement, and proof that wholesale tariff changes do not materially damage monetization.

At Pelephone, 2026 needs to look like continued improvement, not a one-off peak. That means further postpaid and 5G plan growth, sensible use of the labor understandings to support efficiency, and no expensive mistake around HOT Mobile. If a deal happens, it will have to happen at a price and structure that add value, not just volume. If no deal happens, Bezeq's mobile engine still looks strong enough without it.

At Bezeq International, the question is whether the ICT and cloud layer can keep growing faster than the decline in legacy consumer ISP activity. 2025 gave a positive answer, but this remains a more competitive activity with relatively lower margins, so it still needs to prove that the improvement path continues into 2026.

And at yes, this is probably the sharpest test of all. The operating improvement has already arrived. What is still missing is proof that this improvement can cross the line into adjusted net profit and consistently positive free cash flow, without leaning mainly on valuation gains. If that happens, part of the skepticism around the group disappears. If it does not, yes remains the unit that explains the headline more than it explains the cash.

What the market will test in the next reports

In the short to medium term, the market is likely to focus on four simple questions:

• Is the slower pace of normalized improvement really temporary, or was 2025 already a peak year once accounting is stripped out?
• Can yes translate the assumptions embedded in its valuation into cleaner improvement in the actual reported numbers?
• Do the higher distributions and buyback really look like a sensible use of excess cash, rather than a reward being brought forward before the full value has been operationally unlocked?
• Will 2026 bring a real regulatory or operational step that weakens the wall of structural separation?

That is exactly why 2026 is a bridge year. It does not need to reinvent the company. It does need to prove that the shift from investment to return runs through cleaner numbers, not only through valuation reports and capital-return plans.

Risks

The first risk is regulatory, and it is more material than it looks if one reads only the dividend table. Bezeq itself states that structural separation puts the group at a competitive disadvantage versus other telecom groups and creates operating overhead and duplication. As long as that remains true, part of the group synergy simply stays inaccessible.

The second risk is earnings-quality risk at yes. The attached valuation explains the source of the uplift, but it also shows how much of the value depends on assumptions regarding the Partner agreement, the advertising agreement, wholesale internet costs, ARPU, and the lower discount rate. If one of those inputs moves the wrong way, this layer of value can shrink faster than the underlying operating layer.

The third risk is competition and pricing. In broadband, competition remains intense both from infrastructure owners and from operators using the wholesale market. In television, yes is competing against HOT, Cellcom, Partner, and Free TV. In mobile, the number of competitors keeps pressure high. Bezeq has a strong position, but it operates in markets where part of any margin improvement is always exposed to pricing pressure.

The fourth risk is capital allocation. An 80% payout of semiannual profit, NIS 975 million actually distributed in 2025, and a new buyback plan are all sensible moves for a stable company. But if 2026 does not produce more comfortable cash generation, or if a strategic option such as HOT Mobile demands capital, the freedom level may suddenly look narrower.

The fifth risk is execution risk in the migration to IP and in maximizing fiber economics. That transition is moving well, but it still requires managing several worlds at the same time: copper, fiber, wholesale, television, bundles, and regulation. Anyone reading Bezeq as a simpler business than it really is may miss that complexity.

Conclusions

Bezeq ended 2025 as a stronger operating company than it was a year earlier. Fiber has reached real scale, Pelephone delivered a strong year, Bezeq International looks cleaner, and yes is no longer sitting only on the weak side of the story. But the main constraint has not disappeared: the group's full value is still not fully captured at the shareholder level, and the large 2025 profit number also rests on a meaningful accounting layer.

In the short to medium term, the market is unlikely to judge Bezeq by one more attractive headline line item. It will judge it by three things: whether 2026 really looks like a cleaner cash-stabilization year, whether yes moves from valuation uplift into adjusted profit and cash flow, and whether management can return capital without bringing reward forward ahead of financial certainty.

Current thesis: Bezeq's core engines are strong, but a cleaner story still requires 2026 to show less accounting and more conversion of operating improvement into accessible value.

What changed: Bezeq no longer looks mainly like an infrastructure company still spending on fiber, but like a group trying to begin harvesting those investments. That improvement is real, but it arrived together with a large profit figure that also relied on yes revaluation and with a more aggressive distribution stance.

Counter-thesis: caution here may be too heavy, because even without dramatic regulatory relief Bezeq already proved in 2025 that it can grow core revenues, maintain high ratings, reduce CAPEX gradually, and open a new layer of capital return. If yes keeps improving and Pelephone stays strong, regulatory friction may matter less than it seems today.

What could change the market read in the short to medium term: a report in which yes posts cleaner adjusted earnings, continued ARPU and fiber-penetration improvement, a regulatory decision easing structural separation, or on the negative side any sign that distributions and buybacks are getting ahead of cash certainty.

Why this matters: Bezeq is now at the stage where large infrastructure groups move from the test of building to the test of harvesting. If that transition works, 2025 will be remembered as the bridge year. If it does not, much of the improvement will turn out to have been less accessible than it first appeared.

What must happen over the next 2 to 4 quarters for the thesis to strengthen: fixed-line needs to keep showing that fiber offsets copper decline in cash terms, Pelephone needs to preserve ARPU and postpaid growth, yes needs to move from valuation uplift to cleaner operating results, and management needs to prove that elevated distributions do not come at the expense of financial flexibility or strategic judgment.