Cellcom 2025: After IBC, the Real Test Is 2026

Company Overview

Cellcom enters 2026 as a stronger telecom company than the headline profit suggests, but also as a messier one than the headline implies. On one side, the core improved: mobile service revenue rose, fixed-line internet kept shifting toward fiber, adjusted EBITDA increased, leverage fell sharply, and dividends came back. On the other side, net income of ILS 564 million was heavily flattered by the IBC sale, and the fourth quarter already showed how wide the gap can be between reported profit and the underlying operating picture.

What is actually working now is the telecom engine. In mobile, service revenue excluding interconnect climbed to ILS 1.684 billion, the subscriber base rose to 3.661 million, and ARPU excluding interconnect improved to ILS 38.7. In fixed-line, service revenue rose to ILS 1.359 billion, the fiber base reached 351 thousand subscribers, and 91% of broadband infrastructure subscribers were already on fiber. This is not a dramatic breakout, but it is steady progress in the two engines that still matter most.

What a superficial read can easily miss is that the bottom line looks much cleaner than the economics underneath it. In the fourth quarter, net income jumped to ILS 364 million from ILS 55 million a year earlier, but operating profit actually fell to ILS 75 million from ILS 106 million. The difference came from IBC, not from a sudden surge in business quality. On top of that, starting in Q4 the company extended the useful lives of radio and switching equipment and of fiber routers, which lowered depreciation by ILS 12 million already in 2025 and is expected to lower it by another roughly ILS 39 million in 2026. That is not an accounting problem, but it is absolutely something that needs to be normalized.

The active bottleneck today is not demand. It is the question of how quickly the operating improvement can really turn into shareholder-usable cash after leases, bond amortization, dividends, and a growing stack of commitments around Cellcom Energy. That is why 2026 is a test year: not for the story's appeal, but for its quality.

This is what Cellcom's business map looked like in 2025:

That chart matters because it shows what Cellcom really sells. This is not just a mobile carrier, and it is not just a dividend or IBC story. It is a company that still generates almost ILS 3 billion of services revenue, but also depends on ILS 1.257 billion of equipment revenue. When fixed equipment weakens, fixed-line profitability responds immediately. So even if the comfortable narrative is that Cellcom is becoming a cleaner services company, that transition is still incomplete.

Events And Triggers

Trigger one: the IBC sale defined 2025. The deal closed in October 2025, brought in ILS 520 million of cash, and generated a pretax gain of ILS 386 million. It immediately improved the balance sheet, cut net financial debt to ILS 1.119 billion, and helped support the rating upgrade to AA-. But it also created a potential illusion: 2025 net income is not a clean baseline for 2026.

Trigger two: dividends are back in the story. ILS 200 million was paid in December 2025, and another ILS 200 million was declared in March 2026 for payment in April 2026. This is the first dividend distribution in 12 years. That is a clear confidence signal from management, but it also raises the proof threshold. Once Cellcom resumed distributions, the market's focus shifted from EBITDA alone to how much cash really remains after all uses.

Trigger three: the special collective agreement from December 2025 created a voluntary retirement program for 77 employees. The Q4 cost was about ILS 12 million before tax, and the expected annual savings are about ILS 18 million. This is a positive 2026 margin tailwind, but not something big enough to erase competitive pressure by itself.

Trigger four: the ambition to deepen fixed-line exposure is still visible, but at this stage it is optionality, not a thesis anchor. In November 2025 Cellcom submitted a non-binding indicative proposal to buy HOT's fixed-line business, while an earlier TV-related memorandum with HOT was withdrawn after the exemption request was pulled. The message is clear: management wants more fixed-line scale, but there is no deal the market can underwrite yet.

Trigger five: Cellcom Energy keeps expanding through long-duration contracts, including power purchase agreements, memoranda of understanding, and a 50 MW availability certificate agreement for ten years. That creates real strategic option value, but also a new execution and commitment layer that is still barely visible in current earnings.

This is why the 2025 profit line has to be decomposed. The business did improve, but most of the jump in the bottom line came from a disposal event. That does not erase the achievement, but it does change the forward question. 2026 does not need to "repeat 564". It needs to prove that the core business can generate cleaner cash and profit without capital gains doing the heavy lifting.

Efficiency, Profitability And Competition

Mobile improved, but competition did not cool down

The mobile segment showed real operational progress. Service revenue in the segment rose to ILS 1.684 billion, ARPU excluding interconnect improved to ILS 38.7, and the subscriber base reached 3.661 million. Management attributes that mainly to stronger package revenue and roaming, and that fits with the segment's adjusted EBITDA rising to ILS 911 million.

But the picture is not one-directional. Annual churn increased to 31.5% from 29.3% in 2024. In other words, Cellcom is improving revenue quality inside a market that still has heavy customer movement. That is an achievement, but also a warning: there is no structural easing in competition here, only better execution inside a competitive market. If pricing pressure intensifies again, ARPU will need to be defended all over again.

The quarterly picture makes this even sharper. In the fourth quarter, services revenue fell to ILS 722 million from ILS 755 million, mainly because of the interconnect cut, but gross profit still improved to ILS 369 million from ILS 360 million. That means the underlying mobile engine became slightly healthier even while some reported revenue lines moved down. Anyone looking only at total revenue will miss that.

That chart captures the heart of the mobile story: revenue quality improved, but not in a calm market. If 2026 brings ARPU slippage or another step up in churn, the 2025 improvement will look more tactical than structural.

Fixed-line services are improving, but the segment is still not clean

The fixed-line business is moving in the right direction. Services revenue rose to ILS 1.359 billion, the internet base increased to 386 thousand subscribers, the fiber base climbed to 351 thousand, and internet ARPU rose to ILS 99.6. That tells you the company is not just adding subscribers. It is also upgrading the mix.

But the fixed segment is still far from being a smooth annuity engine. Fixed equipment revenue collapsed from ILS 304 million to ILS 162 million, and that drop pushed the segment's operating profit down from ILS 114 million to ILS 89 million despite stronger services revenue. This is exactly the kind of gap that a casual read tends to skip over: services are improving, but the business mix can still destabilize profitability.

That means fixed-line has not yet moved from "growing segment" to "stable segment". To get there, Cellcom needs more than fiber adds. It needs services growth that is strong enough to absorb weakness in equipment and project-type revenue.

That migration matters because fiber is economically better than copper. It supports higher ARPU and a cleaner customer mix. But again, better mix by itself is not yet enough to offset every other pressure point in the segment.

Profitability improved, but 2026 also gets accounting help

At the consolidated level, 2025 was a good year. Gross margin rose to 34.2% from 31.7%, adjusted EBITDA increased to ILS 1.405 billion from ILS 1.358 billion, and operating profit rose to ILS 429 million from ILS 374 million. So the improvement is not only on the balance sheet. It is present in the operating business as well.

But this is where the detail many readers will skip becomes essential. In Q4 2025 the company changed an accounting estimate and extended the useful lives of radio and switching equipment to around ten years, and also extended the lives of fiber routers. That reduced depreciation by ILS 8 million for radio and switching and by ILS 4 million for routers already in Q4. For 2026, the expected depreciation reduction is about ILS 31 million and ILS 8 million respectively, or roughly ILS 39 million in total.

This matters. EBITDA is not affected, but EBIT and net income are. So if 2026 looks cleaner at the reported profit level, not all of that improvement will be operating in nature. Some of it has already been pulled forward through the useful-life reset.

The chart makes the power point visually clear. Even after a growth year, the power segment barely moves consolidated EBITDA. That is exactly why investors should be careful not to treat it as a fully formed third profit engine already. It is not there yet.

Cash Flow, Debt And Capital Structure

Normalized cash generation improved, but that is not the full answer

Start with the normalized bridge. Free cash flow, as defined by the company, came in at ILS 350 million in 2025 versus ILS 285 million in 2024. That metric is built from cash from operations, less investment in property and other assets, and less lease cash payments. It is a legitimate recurring cash-generation view of the operating business, and it did improve.

That number matters because it shows the core business is generating more cash than before. But it does not mean all ILS 350 million was available to shareholders. It excludes debt service and dividend distributions, so it does not answer the question of how much capital freedom actually remained.

There is also a smaller but useful detail here: in the fourth quarter the company prepaid ILS 57 million of spectrum fees for the first half of 2026. That does not make 2025 weak, but it does mean some cash already left the building on behalf of next year.

In the all-in cash picture, IBC still financed part of the comfort

This is where the second frame matters: all-in cash flexibility. Cash and equivalents rose from ILS 371 million at the start of 2025 to ILS 476 million at year-end. On the surface that looks clean. In practice, the path there ran through ILS 520 million of IBC sale proceeds.

On the other side of the equation stood ILS 630 million of capex and intangible investment, ILS 503 million of bond principal repayments, ILS 212 million of lease principal repayments, ILS 200 million of cash dividends paid in December, and additional interest and other cash uses. So even after a good year, the increase in the cash balance did not come only from the underlying business. It also leaned on monetization.

What really matters is the gap between the two readings. In the normalized frame, cash generation improved. In the full frame, 2025 was still not a year in which Cellcom could invest, delever, distribute cash, and still lift cash balances without a major asset sale. That is not a bearish statement. It is simply why the return of dividends turns 2026 into a proof year.

The balance sheet is cleaner, but IBC did not disappear completely

At the balance-sheet level, the improvement is sharp. Net financial debt fell to ILS 1.119 billion from ILS 1.701 billion. Net debt to adjusted EBITDA dropped to 0.8 from 1.25. Equity rose to ILS 2.835 billion. The company is sitting very comfortably relative to its financial covenants and also has total credit facilities of ILS 600 million. Put simply, leverage is no longer the main Cellcom problem.

That said, the balance sheet is not sterile. Lease liabilities still stand at ILS 655 million, of which ILS 181 million are current. And the IBC chapter is not fully closed. The company is still in a dispute with IBC around line-purchase obligations, IBC filed a counterclaim of roughly ILS 16.5 million and already drew a similar amount from guarantees, and Cellcom discloses principal and interest owed to IBC of about ILS 694 million based on its own position regarding rollout obligations up to two million households.

So yes, the balance sheet is materially stronger. But no, the IBC monetization did not erase every open thread connected to the old relationship.

The near-term market implication is two-sided. On one hand, this is a much calmer balance-sheet story than it used to be. On the other hand, that new comfort can make investors underweight the relevance of cash uses and the layers that are still open around IBC and Cellcom Energy.

Outlook

Before getting into the details, five non-obvious conclusions define the 2026 setup:

• Finding one: 2026 starts without the IBC pretax gain of ILS 386 million, so any reading of reported profit will need far more normalization.
• Finding two: the company already embedded roughly ILS 39 million of accounting support into 2026 through longer useful lives, so some improvement in reported earnings will not be purely operating.
• Finding three: fixed-line does not just need more fiber subscribers. It needs services growth strong enough to offset equipment and international volatility and to re-stabilize operating profit.
• Finding four: Cellcom Energy is moving from option value to a real commitment stack while its current earnings contribution is still almost immaterial.
• Finding five: once dividends are back, EBITDA alone is no longer enough. The market will need proof that distributable cash is real.

That makes 2026 not a clean breakout year, but a cash proof year. The operating core already looks better. The question now is whether it stands on its own feet without IBC.

In mobile, the key checkpoint is clear: preserve the ARPU improvement without another step up in churn. The company itself flags e-SIM as a technology that may pressure roaming revenue, even if it may also create other opportunities. That is a classic case of a near-term commercial improvement that does not erase a longer-term structural risk.

In fixed-line, 2026 needs to show that fiber is not just a subscriber-growth story, but a profit story. At year-end 2025 Cellcom had 351 thousand fiber subscribers and internet ARPU of ILS 99.6. But the segment's operating profit still fell. If 2026 shows continued fiber growth alongside stable or improving fixed-line EBITDA, the segment read will improve. If fiber keeps growing while operating profit remains soft, the market will conclude that the mix shift is real but not yet strong enough.

Cellcom Energy is the most interesting and the riskiest forward-looking chapter. On one side, it is scaling rapidly: ILS 195 million of revenue on Cellcom's share, a move from negative to positive EBITDA, legacy electricity purchase agreements from six facilities with cumulative expected payments of about ILS 750 million, an additional September 2025 agreement with expected payments of about ILS 1.18 billion, future project memoranda with another roughly ILS 780 million of expected payments, and a 50 MW availability-certificate agreement with expected payments of about ILS 350 million. On top of that, expected payments in residential-customer deals stand at about ILS 1.2 billion. On the other side, all of that translated into only ILS 1 million of adjusted EBITDA in 2025, on Cellcom's share.

That means the challenge for Cellcom Energy in 2026 and 2027 is not signing more agreements. It is proving economics. The project from the September 2025 agreement is expected to start commercially in the third quarter of 2026, while the project behind the 50 MW availability certificate is expected to connect in the second half of 2027. So for now, commitments and guarantees are arriving earlier than meaningful profit contribution. Anyone treating Cellcom Energy as a fully formed earnings engine today is moving too fast.

The same discipline applies to corporate strategy. The indicative proposal for HOT's fixed-line business could, in theory, reshape the market. But today it remains non-binding, with no certainty of negotiations, diligence, or regulatory approval. So the 2026 thesis cannot be built on a transaction that may never advance.

Risks

Competition is still intense

The ARPU improvement in mobile is real, but churn also rose. That means the mobile segment is still operating in a very competitive environment, and any pricing, packaging, or service mistake can show up quickly in customer metrics. In fixed-line too, Bezeq and HOT still enjoy structural infrastructure advantages and bundle power.

IBC is not truly gone

The IBC sale reduced debt and brought in cash, but it did not eliminate every IBC-related risk. The company still describes an active legal dispute, a counterclaim, a guarantee draw, and ILS 694 million of remaining principal and interest owed to IBC based on its own interpretation of the underlying obligations. In other words, IBC no longer sits on the balance sheet as an equity investment, but it still sits in the relationship, the future payments, and the uncertainty.

Cellcom Energy is creating option value, but also exposure

In power, the company has capped guarantees of about ILS 74 million and additional uncapped guarantees with estimated exposure of about ILS 39 million. That is not a balance-sheet threat today, but it does mean the new engine is already consuming support capacity before it has proved durable profit contribution.

2025 also benefited from accounting relief

The longer useful lives for radio equipment and routers support reported earnings in 2026. That is not a risk in the sense of an immediate problem, but it is a real interpretation risk. If the market prices accounting support as if it were fully economic improvement, the read will become too generous.

Security and FX still matter

For 2025 the company estimated the total pretax hit from the security backdrop at about ILS 10 million, mainly because of pressure on tourism, roaming, and device sales during the conflict with Iran. In addition, Cellcom remains exposed to the dollar in handsets, network equipment, TV content, communications capacity, and roaming. These are real risks even if they are not the core story today.

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Conclusion

Cellcom ends 2025 in a much better place than a year ago. The mobile and fixed-line cores improved, leverage fell materially, and dividends returned. But the story is still not clean: reported earnings leaned on the IBC sale, part of the 2026 support will be accounting-driven, and the power business is still consuming commitments faster than it is generating profit.

The short-to-medium term implication is straightforward. The market should not ask whether Cellcom looks better after IBC. It should ask whether 2026 proves that the improvement holds without capital gains and with greater demands on cash.

Current thesis: Cellcom's core improved, but 2026 will test the quality of cash and earnings without one-off IBC support.

What changed versus the old read: The question used to be whether the balance sheet could hold. Now the question is whether management can hold together better operations, cash distributions, and the buildout of a new power engine without diluting earnings quality.

Counter-thesis: It is possible that the caution here is too heavy, because the telecom core improved in both operating segments, leverage is down, and the company already enters 2026 from a strong enough position to absorb both dividends and continued investment.

What could shift the market read in the near term: quarters without IBC gains but with stable EBITDA, mobile ARPU holding without another churn spike, post-dividend cash discipline after April 2026, and visible power progress without unusual growth in guarantees or exposure.

Why this matters: Cellcom is no longer just a balance-sheet survival case. It is becoming a test of whether operating improvement can really be converted into accessible shareholder value.

What must happen over the next 2-4 quarters for the thesis to strengthen: the mobile segment needs to preserve service-revenue improvement, fixed-line needs to re-stabilize operating profit, Cellcom Energy needs to start proving economics rather than just contract volume, and the company needs to show that cash headroom remains healthy even after distributions. What would weaken the thesis is ARPU erosion, post-dividend cash tightening, or out-of-core exposure growing faster than actual profit contribution.