Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

Cellcom disclosed 23 risk factors in its most recent earnings report. Cellcom reported the most risks in the “Finance & Corporate” category.

Risk Overview Q4, 2020

Risk Distribution

30% Finance & Corporate

22% Legal & Regulatory

22% Macro & Political

13% Tech & Innovation

9% Production

4% Ability to Sell

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

S&P500 Average

Sector Average

Risks removed

Risks added

Risks changed

Cellcom Risk Factors

New Risk (0)

Risk Changed (0)

Risk Removed (0)

No changes from previous report

The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q4, 2020

Main Risk Category

Finance & Corporate

With 7 Risks

Finance & Corporate

With 7 Risks

Number of Disclosed Risks

-2

From last report

S&P 500 Average: 31

-2

From last report

S&P 500 Average: 31

Recent Changes

0Risks added

2Risks removed

4Risks changed

Since Dec 2020

0Risks added

2Risks removed

4Risks changed

Since Dec 2020

Number of Risk Changed

From last report

S&P 500 Average: 2

From last report

S&P 500 Average: 2

See the risk highlights of Cellcom in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 23

Finance & Corporate

Total Risks: 7/23 (30%)Below Sector Average

Share Price & Shareholder Rights3 | 13.0%

Share Price & Shareholder Rights - Risk 1

Changed

Our network sharing agreement consideration constitute a significant portion of our revenues

Consideration from our network sharing agreement with Xfone is material to our results of operations. If the sharing agreement is terminated or its terms are changed such that payments to us are under the agreement are materially reduced or payments are not made to us over a period of time, for any reason whatsoever, it may lead to a material adverse effect on our results of operations. For details regarding breach of the sharing agreement by Xfone, notification of termination of the agreement by Xfone and legal proceedings the Company has initiated, see "Item 4. Information on the Company – B. Business Overview –– Network and Infrastructure – Cellular Segment – Network sharing agreement".

Share Price & Shareholder Rights - Risk 2

Provisions of Israeli law and our license may delay, prevent or impede an acquisition of us, which could prevent a change of control.

The Companies Law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. Further, the provisions of our licenses require the prior approval of the Ministry of Communications for changes of control in our Company. Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when the time expires, tax then becomes payable even if no actual disposition of the shares has occurred. These provisions could delay, prevent or impede an acquisition of us, even if such an acquisition would be considered beneficial by some of our shareholders.

Share Price & Shareholder Rights - Risk 3

A substantial number of our ordinary shares could be sold into the public market, which could depress our share price.

Our largest shareholder, Koor, holds approximately 46.1% of our outstanding ordinary shares, as of March 31, 2021 (of which 5% are held (through a lending transaction which DIC recently informed of its termination) by two shareholders, which are considered joint controlling shareholders with Koor). The market price of our ordinary shares could decline as a result of future sales by Koor or other existing shareholders or the perception that these sales could occur. Sales may be made pursuant to a registration statement, filed with the U.S. Securities and Exchange Commission, or the SEC, pursuant to the terms of a registration rights agreement or otherwise, or in reliance on an exemption from or transaction not subject to the registration requirements of the Securities Act, including the exemptions provided by Rule 144. Any decline in our share price could also make it difficult for us to raise additional capital by selling shares. In addition, we may issue additional options for a price lower than our market price, which could, in turn, decrease our share price as well. See "Item 5. Operating and Financial Review and Prospects. – B. Liquidity and Capital Resources – General". In addition, under our 2015 option plan, options and Restricted Stock Units, or RSU, are subject to vesting schedules but vesting will be accelerated upon certain events including any sale or other disposition of all, or substantially all, of our outstanding shares. As of December 31, 2020 we had 14,493,651 shares reserved for issuance upon the exercise of options and RSUs. See "Item 6. Directors, Senior Management and Employment – E. Share Ownership –Share Incentive Plans".

Accounting & Financial Operations2 | 8.7%

Accounting & Financial Operations - Risk 1

Changed

Our operating results, profitability and cash flow have decreased significantly in the past several years, resulting in loss. Further decline may adversely affect our financial condition.

As a result of substantial and continuing changes in our regulatory and business environment, our business results, profitability and cash flow decreased significantly over the past several years and in 2018, 2019 and 2020, resulted in loss. Further decline may adversely affect our financial condition. The main factors leading to the continued decrease in our results of operations were regulatory developments intended to increase competition in the Israeli communications market, which resulted in significant erosion in the prices charged for the provision of cellular services. Should the aggressive competition in the various markets in which we operate continue and given our large amount of debt and the additional investments we are required to make in relation to the 2020 frequencies tender, our results of operation and financial condition may be adversely affected and we may be prevented from making the investments necessary in order to maintain our competitive standing and potential future growth, and we may be required to raise additional debt on unfavorable terms.

Accounting & Financial Operations - Risk 2

Changed

Our handsets profitability have decreased and may decrease further.

Handsets sales account for a substantial portion of our revenues and profitability. In recent years additional competitors have entered the handset market and increased the competition in this market, which has contributed to the decrease in our profitability from handsets. The variety of marketing channels we use, including the increased part of transactions using our digital platform also led to a decrease in our profitability in 2020. Continuance of this trend or additional changes to this market, including the entry of additional competitors, including domestic and international retailers, changes of distribution channels or customers purchasing habits, inability to continue to market certain suppliers' products, which account for a big part of our sales (such as Samsung and Apple, which currently account for the majority of our sales, may materially adversely affect our handset profitability and our profitability in general. See also "We face intense competition in all aspects of our business." Further, if the Corona virus effects and regulatory restrictions on our operations continue for a long duration, they would adversely affect our handset sales and profitability therefrom. See "The Corona virus may adversely affect our results of operations.

Debt & Financing1 | 4.3%

Debt & Financing - Risk 1

Our substantial debt increases our exposure to market risks, may limit our ability to incur additional debt that may be necessary to fund our operations and could adversely affect our financial stability

As of December 31, 2020, our total indebtedness and long-term loans were approximately NIS 3,349 million ($1,042 million), with our net debt at approximately NIS 2,276 million ($708 million). For additional details see "Item 5. Operating and Financial Review and Prospects. – B. Liquidity and Capital Resources – General". The terms of our debentures and other credit facilities currently permit us to incur additional indebtedness (subject in some cases to certain limitations). Our substantial debt could adversely affect our financial condition by, among other things: - increasing our vulnerability to adverse economic, industry or business conditions;- limiting our flexibility in planning for, or reacting to, changes in our industry and the economy in general;- requiring us to dedicate a substantial portion of our cash flow from operations to service our debt, thus reducing the funds available for operations and future business development, such as investing in the upgrade of our networks, as well as for dividend distribution; and - limiting our ability to obtain, or resulting in less favorable terms and pricing for, additional financing to operate, develop and expand our business or for refinancing existing debt; Israeli institutional investors must follow certain procedures and requirements before investing in non-governmental debentures. As a result, our indentures include certain limitations and covenants, including a covenant not to issue additional debentures if it involves a rating downgrade, certain financial covenants, negative pledge, cross default, limitation on the distribution of dividends, obligation to pay additional interest in case of certain rating downgrades. For details regarding such limitations and covenants see "Item 5. Operating and Financial Review and Prospects. – B. Liquidity and Capital Resources – Debt Service". These limitations are expected to apply to any additional debt incurred by us. These procedures, limitations and covenants limit our freedom to conduct our business, may impose additional costs on us and may limit our ability to borrow additional debt from Israeli institutional investors as well as adversely affect the terms and price of such debt raising. Further, future increases of the interest rates may increase costs for future debt raising. In August 2019 our rating in relation to our debentures traded on the Tel Aviv Stock Exchange, or TASE was downgraded to ilA and our rating outlook was maintained at "negative". Any further downgrade in our rating, and any adverse change in our financial results, including any increase in our Net Leverage (defined in our indentures and other credit facilities as the ratio of net debt to EBITDA during a period of 12 consecutive months, excluding one-time events), may adversely affect the terms and price of debt raised.

Corporate Activity and Growth1 | 4.3%

Corporate Activity and Growth - Risk 1

Our investment in new businesses involves many risks.

We have invested and expect to continue to invest in exploration and development of new business opportunities in order to extend and complete our capabilities and offerings, such as the investment in IBC, the purchase of Golan, and our offerings in the Internet of things (IOT) field. . Such endeavors may involve significant risks and uncertainties. Because these new ventures are inherently risky, no assurance can be given that such strategies and offerings will be successful and will not materially adversely affect our reputation, financial condition, and operating results. Moreover, entry into such new ventures may trigger increased competitive pressure by the incumbent providers of competing services on our core business, aiming at preventing our efforts to compete with them at the relevant market

Legal & Regulatory

Total Risks: 5/23 (22%)Above Sector Average

Regulation3 | 13.0%

Regulation - Risk 1

There are certain restrictions in our licenses relating to the ownership of our shares.

Our cellular license restricts ownership of our ordinary shares and who can serve as our directors, as follows: - our founding shareholder (or its transferee or transferees, if approved in advance by the Ministry of Communications as "founding shareholders"), currently, DIC, Koor Industries Ltd. (wholly owned by DIC), or Koor and Mega Or Holdings Ltd., or Mega Or, must own at least 26% of each of our means of control;- Israeli citizens and residents among our founding shareholders (or their approved transferees), currently Mega Or, must own at least 5% of our outstanding share capital and each of our other means of control;- a majority of our directors must be Israeli citizens and residents;- at least 10% of our directors must be appointed by Israeli citizens and residents among our founding shareholders; and - we are required to have a security committee of our Board of Directors that deals with matters relating to state security. If these requirements are not complied with, we could be found to be in breach of our license and our license could be changed, suspended or revoked. In addition, our license provides that, without the approval of the Ministry of Communications, no person may acquire or dispose of shares representing 10% or more of our outstanding share capital. Further, our directors and officers and any holder of ordinary shares representing 5% or more of our outstanding share capital may not own 5% or more of Bezeq or any of our competitors or serve as a director or officer of such a company, subject to certain exceptions, which require the prior approval of the Ministry of Communications. To ensure that an unauthorized acquisition of our shares would not jeopardize our license, our articles of association provide that any shares acquired without approval required under our license will not be entitled to voting rights.

Regulation - Risk 2

We operate in a heavily regulated industry, which can harm our results of operations. Regulation in Israel has materially adversely affected our results.

A substantial part of our operations is subject to the Israeli communications laws and the licenses for the provision of different telecommunications services that we received from the Ministry of Communications in accordance with the Communications Law. The interpretation and implementation thereof are not certain and subject to change and disagreements have arisen and may arise in the future between the Ministry of Communications, or MOC, and us. The Communications Law and regulations thereunder grant the Ministry of Communications extensive regulatory and supervisory authority with regard to our activities. The MOC may modify our licenses without our consent and in a manner that could limit our freedom to conduct our business and harm our results of operations. Frequent changes, or changes made on a timetable we cannot meet, to our licenses and legislation can increase the risk of noncompliance with our licenses or violation of such legislation and our exposure to lawsuits and regulatory sanctions. The MOC has the authority to impose substantial sanctions in the event of a breach of our licenses or the applicable laws and regulations and the authority to revoke them, in case we materially violate their terms. Our licenses are limited in time and may be extended upon our request to the Ministry of Communications and its confirmation that we have complied with the provisions of our license and the applicable law, have continuously invested in the improvement of our service and network and have demonstrated the ability to do so in the future. Our operations are also subject to the regulatory and supervisory authority of other Israeli regulators which have the authority to impose criminal and substantial administrative sanctions against us. Further, our business and results of operations could be materially and adversely affected by new legislation and decisions by regulators or the courts that: - approve the annulment or further relaxation of the structural separation requirements imposed on the Bezeq and Hot communications groups. See also "– We face intense competition in all aspects of our business" below and "Item 4. Information on The Company – B. Business Overview "-Competition";- set unfavorable regulation regarding tariffs, including high tariffs for wholesale services, increasingly so in light of the rapidly growing demand for data capacity for both internet and television services; or fail to install sufficient mechanisms to prevent Bezeq and Hot from reducing their retail tariffs and thereby reducing the difference between the wholesale and retail tariffs ("margin squeeze"), or fail to enforce regulation with respect to the landline wholesale market adversely affecting our competitive capabilities; See also "Item 4. Information on The Company – B. Business Overview "-Competition" and "– Government Regulations – Fixed-line Segment – Landline";- award our competitors certain benefits and leniencies. See also "Item 4. Information on the Company – B. Business Overview – Competition", "– Government Regulations – Cellular Segment" and thereunder: – Mobile Virtual Network Operators" and "Government Regulations – Fixed-line Segment";- do not renew our licenses (or renew them on terms that are not favorable to us);- allocating frequencies used by us to other operators or limit our usage thereof or demand that we return frequencies allocated to us or use less frequencies than previously allocated to us, or not allow us to obtain additional frequencies, as such become necessary, or do so under unfavorable terms or less favorable or at a smaller quantity than our competitors, or demand that we change frequencies on an unreasonable timetable or bear the costs of such an exchange;- set deployment requirements for our network, when using new frequencies, requiring us to make substantial investments, without regard to their economic viability nor to our financial situation; see "Our regulatory and business environment, our operating results, profitability and cash flow have decreased significantly in the past several years, resulting in loss. Further decline may adversely affect our financial condition" and "We may be adversely affected by the significant technological and other changes in the telecommunications industry "below and "Item 4. Information on the Company – B. Business Overview –– Network and Infrastructure – Cellular Segment – Spectrum allocation;"- lower entry barriers and encourage additional competitors to enter the communications market , reducing requirements for obtaining a license or a permit to provide communications services, which may further increase the competition in the market;- substantially widen the current ability to self-provide communications services, including through an unlicensed third party; provision of a better coverage than that provided by mobile network operators, or MNOs, through the usage of several networks; allow the provision of non-universal cellular service;- impose new safety or health-related requirements;- impose additional restrictions or requirements with respect to the construction and operation of cell sites or the networks (see "We may not be able to obtain permits to construct and operate cell sites" below);- impose restrictions or demand we meet additional requirements on the provision of services or products we provide or regulate or otherwise intervene with the terms under which we advertise, market, price or provide them to our subscribers, including in respect of existing agreements;- set higher service standards or costly requirements relating to the service we provide our customers, both in relation to our network quality and coverage and our customer service, including response times at our call centers;- set a timetable for the implementation of new requirements in our license or other legislation which we cannot meet;- impose a stricter policy or set stricter regulation with respect to privacy protection, including for commercial activities by us or for the benefit of third parties;- impose regulation on our "over-the-top", or OTT, TV services, including the requirement to finance original productions, or applying such regulation to us and not to other OTT TV providers. See "– Item 4. Information on the Company – B. Business Overview – Government Regulations ? Fixed-line Segment – OTT TV"; and - limit or prohibit the renewal of our licenses and allocation of additional frequencies to us, as we are included in the list of concentrated entities (being a subsidiary of Discount Investment Corporation Ltd., or DIC) published annually according to the Law for the Promotion of Competition and the Mitigation of Concentration, or the Concentration Law;- impose unfavorable regulation on IBC's operations or competitive standing, in as much as same shall have an adverse effect on us as indirect shareholder or customer of IBC. If we fail to compensate for lost revenues, increased expenses (objectively or in comparison to our competitors) or additional investments resulting from past or future legislative or regulatory changes with alternative sources of income or otherwise, our results of operations may be materially adversely affected.

Regulation - Risk 3

We may not be able to obtain permits to construct and operate cell sites

We depend on our network of cell sites to maintain and enhance network coverage for our cellular subscribers. We also deploy and operate microwave sites as part of our transmission network. The construction and operation of these various facilities are highly regulated and require us to obtain various consents and permits. We have experienced difficulties in obtaining some of these consents and permits, particularly in obtaining building permits for cell sites from local planning and building authorities. As of December 31, 2020, we operated a small portion of our cell sites without building permits or applicable exemptions and approximately 33% of our cell sites without building permits in reliance on an exemption from the requirement to obtain a building permit, mainly for radio access devices. In October 2018, regulations setting procedures for the construction, changes and replacement of radio access devices exempt from building permits were enacted. These regulations reflect previous judicial limitations placed upon our ability to make changes and replace radio access devices and also introduce a new licensing procedure that further reduces our ability to construct new radio access devices based on such exemption. This may adversely affect our existing networks and our networks' build out, more so in light of the necessity to support the new frequencies we won in the 2020 frequencies tender (see "Item 4. Information on The Company – B. Business Overview –– Network and Infrastructure – Cellular Segment – Spectrum allocation"). In addition, the Ministry of Justice expressed an opinion that such regulations and the exemption do not relate to the radio access devices' ancillary equipment and related legal proceedings are awaiting the court's decision. The exclusion of the ancillary equipment from the exemption, if adopted, could adversely affect our existing networks and our networks' build out. Additionally, District Court rulings adopted a narrower interpretation of the exemption, including in regards to 'rooftops' to which the exemption may be applied and other legal proceedings, including such claiming an extraordinary usage permit is required in certain circumstances, await the court's decision. We also rely on the exemption for our rooftop microwave sites and signal amplifiers (known as 'repeaters'). It is unclear whether other types of repeaters require a building permit. In addition, we may be operating a significant number of our cell sites in a manner that is not fully compatible with the building permits issued for these cell sites, which may, in some cases, also constitute grounds for termination of our lease agreements for those sites or claims for breach of such agreements. Pursuant to the Israeli Non-Ionizing Radiation Law, 2006, the granting or renewal of an operating permit by the Commissioner of Environmental Radiation at the Ministry of Environmental Protection of Israel, or the Commissioner, for a cell site or other facility is subject to the receipt of a building permit or an exemption from such a permit. Operation of a cell site or other facility without a building permit or operating permit or not in accordance with the permits or other legal requirements may subject us and our officers and directors to criminal, administrative and civil liability, to eviction orders in respect of the cell sites in breach, revocation or suspension of the operating permit, as well as to withholding the grant of operating permits to additional cell sites or demolition orders. As a result, we may be required to relocate cell sites to less favorable locations or stop operation of cell sites. If we are unable to obtain or rely on exemptions from obtaining or to renew building or other consents and permits for our existing cell sites or other facilities, or if the Plan is changed to include additional restrictions and requirements on the construction and operation of cell sites, it could adversely affect our existing network and its build-out, delay the deployment of our networks, negatively affect the extent, quality and capacity of our network coverage and our ability to continue to market our products and services effectively, all of which may have a material adverse effect on our results of operations and financial condition. For additional details see "Item 4.B – Business Overview – Government Regulations – Cellular Segment – Permits for Cell Site Construction".

Litigation & Legal Liabilities2 | 8.7%

Litigation & Legal Liabilities - Risk 1

We may be required to indemnify certain local planning and building committees in respect of claims against them.

Under the Israeli Planning and Building Law, 1965, by approving a building plan, local planning and building committees may be required to compensate for depreciation of properties included in or neighboring the approved plan. As a precondition to obtaining a cell site construction permit from a planning and building committee, we are required to provide a letter to the committee indemnifying it for possible depreciation claims and have provided hundreds of such indemnification letters to local planning and building committees. Calls upon our indemnification letters may have a material adverse effect on our financial condition and results of operations. We may also decide to demolish or relocate existing cell sites to less favorable locations or not at all, due to the obligation to provide indemnification. As a result, our existing service may be impaired or the expansion of our network coverage could be limited.

Litigation & Legal Liabilities - Risk 2

We are exposed to, and currently are engaged in, a variety of legal proceedings, including class action lawsuits.

We provide services to millions of subscribers on a daily basis. As a result of the scope and magnitude of our operations, as well as the multitude of pricing plans for stand-alone and bundles of services, the large amount of usage data our information systems need to process and record with relation to our subscribers according to their respective pricing plans, the frequent and multiple changes to our operation and pricing plans due to regulatory changes or in response to the changing market conditions, and the involvement of thousands of sales and customer service representatives in the sale process and after sale contacts with our existing or prospective customers - all increasing the risk of discrepancies occurring between a pricing plan and the information processed by our internal information systems or inadequate information provided, despite our continued efforts to the contrary - we are subject to the risk of a large number of lawsuits, including class action suits by consumers and consumer organizations. These actions are costly to defend and could result in significant judgments against us, which may materially and adversely affect our financial results. We are currently engaged in dozens of purported class action suits as a defendant, many of which are for substantial amounts. For a summary of certain material legal proceedings against us, see "Item 8 – Financial Information - A. Consolidated Statements and Other Financial Information –Legal Proceedings". We employ thousands of employees and are therefore subject to the risk of employee lawsuits, including class action suits by employees. We are subject to the risk of intellectual property rights claims against us, in relation to our products and services including TV service and other content related services, we purchase from third party content providers. These claims may require us to initiate or defend protracted and costly litigation, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages or may be required to obtain licenses for the infringing product or service, which, if in substantial sums, could harm our results of operations. If we cannot obtain all necessary licenses on commercially reasonable terms, we may be forced to stop using or selling the products and services.

Macro & Political

Total Risks: 5/23 (22%)Above Sector Average

Economy & Political Environment1 | 4.3%

Economy & Political Environment - Risk 1

We conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel.

Our operations, our network, our customers and some of our suppliers are located in Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Any armed conflicts, terrorist activities or political instability in the region or hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations, including due to a decrease in the number of tourists visiting Israel and increasing criticism of Israel in the international community (such as the increasing international pressure to boycott Israeli companies, including through the United Nations' Human Rights Council "name and shame list", especially when such companies operate in territories held by Israel in Judea and Samaria, as we and other Israeli operators are required to do under our license). Further, a substantial part of our network and information systems is located within range of missile strikes from the Gaza Strip and Lebanon. Any damage to our network or information systems may damage our ability to provide service, in whole or in part or otherwise damage our operation and could have an adverse effect on our business, financial condition or results of operations. In addition, in the event that the State of Israel relinquishes control over certain territories currently held by it to the Palestinian Authority, we will not be able to provide service from our cell sites located in Israeli populated areas and on connecting roads in these territories. This may result in the loss of subscribers and revenues and in a decrease in our market share.

Natural and Human Disruptions3 | 13.0%

Natural and Human Disruptions - Risk 1

Our freedom and ability to conduct our operations may be limited during periods of national emergency.

Israeli law permits the Prime Minister of Israel, for reasons of state security or public welfare, to order a telecommunications license holder to provide services to or to establish a telecommunications facility for the security forces, and entitles the Israel Defense Forces to register or take engineering equipment and facilities as may be required for the security forces to carry out their duties. Israeli law also permits the Israeli Government, during national emergencies or for reasons of national security, to take all necessary actions in order to ensure state security, including taking control of our network. If national emergency situations arise in the future and if we are to be subject during such time to any of the foregoing actions, this could adversely affect our ability to operate our business and provide services during such national emergencies and adversely affect our business operations.

Natural and Human Disruptions - Risk 2

The Coronavirus may adversely affect our results of operations

The Coronavirus was declared a global pandemic by the World Health Organization in March 2020. As of March 2020, the State of Israel (similar to many additional countries) took significant steps in an attempt to prevent the spread of the virus. Among these steps were, restrictions on citizens' movement and employment, restrictions on gatherings and events, restrictions on commercial activity, the closure of borders between states, the closure of places of culture and leisure, and a considerable reduction of the presence of employees in workplaces. These restrictions led to a significant decrease in both inbound and outbound international tourism and to a significant adverse effect on our roaming revenues in 2020. We expect there to also be a substantial adverse effect on our roaming revenues in the near future, as long as the restrictions on the movement of outbound and inbound tourists continue. Similarly, as a result of the restrictions on commerce and the closure of shopping malls and retail centers, we closed our points of sale and service centers during the lockdowns. Continued restrictions and other adverse effects of the Coronavirus on us and the market in general, including on the financial condition in Israel and around the world, the scope of unemployment, the scope of private consumption, the concern of a local or global recession, or a renewed outbreak of the virus, may adversely affect our operations.

Natural and Human Disruptions - Risk 3

Alleged health risks relating to non-ionizing radiation generated from cell sites and cellular devices may harm our prospects

Handsets, accessories and various types of cell sites are known to be sources of non-ionizing radiation emissions and are the subject of an ongoing public debate and concern in Israel. Radio frequency electromagnetic fields were classified by the International Agency for Research on Cancer (an agency of the World Health Organization) as possibly carcinogenic to humans (Group 2B), based on an increased risk for glioma, a malignant type of brain cancer associated with wireless phone use, and research is being conducted in regards to cellular handsets use and cancer and other health risks. Recommendations to take precautionary measures when using cellular handsets were published by the Israeli authorities and in March 2020, the international committee for protection from radio frequency radiation updated its guidelines for protection from radio frequency radiation. While, to the best of our knowledge, the handsets that we market comply with the applicable legislation that relate to acceptable "specific absorption rate," or SAR, levels, we rely on the SAR levels published by the manufacturers of these handsets and do not perform independent inspections of the SAR levels of these handsets. As the manufacturers' approvals refer to a prototype handset, we have no information as to the actual level of SAR of the handsets throughout the lifecycle of the handsets, including in the case of handset repair. See also "Item 4. Information on the Company – B. Business Overview – Government Regulations – Cellular Segment – Handsets". Health concerns regarding cell sites have caused us difficulties in obtaining permits for cell site construction and obtaining or renewing leases for cell sites If health concerns regarding non-ionizing radiation increase further, or if adverse findings in studies of non-ionizing radiation are published, non-ionizing radiation levels are found to be higher than the standards set for handsets and cell sites, we may be subject to health-related claims for substantial sums. Consumers may also be discouraged from using cellular handsets and regulators may impose additional restrictions on the construction and operation of cell sites or handset and accessories marketing and usage. As a result, we may experience increased difficulty in constructing and operating cell sites and obtaining leases for new cell site locations or renewing leases for existing locations, or be exposed to property depreciation claims; and we may lose revenues due to decreasing usage of our services and be subject to increased regulatory costs. We have not obtained insurance for these potential claims. An adverse outcome or settlement of any health-related litigation against us or any other provider of cellular services could have a material adverse effect on our results of operations, financial condition or prospects.

Capital Markets1 | 4.3%

Capital Markets - Risk 1

Our business results may be affected by currency fluctuations, by our currency hedging positions and by changes in the Israeli Consumer Price Index

A portion of our cash payments are incurred in, or linked to, foreign currencies, mainly U.S. dollars. As almost all of our cash receipts are in NIS, any devaluation of the NIS against the foreign currencies in which we make payments, will increase the NIS cost of our foreign currency denominated or linked expenses and capital expenditures. Furthermore, since the principal amount of and interest that we pay on our Series H and J debentures, are linked to the Israeli CPI, any increase in the Israeli CPI will increase our financing expenses and could adversely affect our results of operations. We purchase derivative financial instruments in order to hedge part of the foreign currency risks and CPI risks deriving from our operations and indebtedness. Derivatives are initially recognized at fair value.

Tech & Innovation

Total Risks: 3/23 (13%)Below Sector Average

Cyber Security1 | 4.3%

Cyber Security - Risk 1

Cyber attacks impacting our networks or systems could have an adverse effect on our business.

Cyber attacks, including through the use of malware or ransomware, computer viruses, dedicated denial of services attacks, credential harvesting and other means for obtaining unauthorized access to or disrupting the operation of our networks and systems and those of our suppliers, vendors and other service providers, could have an adverse effect on our business. Cyber attacks against companies, including Cellcom Israel, have increased in frequency, scope and potential harm in recent years. Cyber attacks may cause equipment failures, loss, disclosure, access, usage, corruption, destruction or the appropriation of information, including sensitive personal information of customers or employees, or valuable content and technical and marketing information, as well as disruptions to our or our customers' operations. Further, the perpetrators of cyber attacks are not restricted to particular groups or persons. These attacks may be committed by company employees and agents, advertently or inadvertently, or by external actors operating in any geography, including jurisdictions where law enforcement measures to address such attacks are unavailable or ineffective, and may even be launched by or at the behest of nation states. The preventive actions we take to reduce the risks associated with cyber attacks, including protection of our systems and networks, may be insufficient to repel or mitigate the effects of a major cyber attack in the future, as they become more sophisticated and harder to repel. The inability to operate our networks and systems or those of our suppliers, vendors and other service providers as a result of cyber attacks, even for a limited period of time, may result in significant expenses to us, loss of market share to other communications providers, lost revenues from business interruption and civil and administrative litigation and proceedings. The potential costs associated with these attacks could exceed the insurance coverage we maintain. Further, certain of our businesses, such as those offering security solutions and infrastructure and cloud services to business customers, could be negatively affected if our ability to protect our own networks and systems is called into question as a result of a cyber attack. Any of these occurrences could damage our reputation and could further result in material adverse effect on our results of operation or financial condition.

Technology2 | 8.7%

Technology - Risk 1

Our operations are dependent on complex technology and information systems.

Our operations are dependent on a number of complex technological and information systems, including billing systems. The occurrence of malfunctions in such complex and ever changing and expanding systems is inevitable. In addition, we are in the process of developing and implementing a unified customer relation management, or CRM, system for both our cellular and fixed-line operations, which may result in larger expenditures than anticipated, require significant management attention that would otherwise be available for our ongoing business, or lead to unforeseen operating difficulties and malfunctions. A malfunction in any of our systems which severely impacts our ability to provide products and services to our customers or adequately bill them, may result in loss of revenues to us, may adversely impact our brand and service perception, and expose us to legal claims and regulatory sanctions, all of which may adversely affect our results of operations.

Technology - Risk 2

We may be adversely affected by the significant technological and other changes in the telecommunications industry.

The telecommunications market is known for rapid and significant technological changes and requires ongoing investments in advanced technologies in order to remain competitive. We estimate that data traffic will continue to rapidly grow in the future on both cellular and landline networks. To meet the growing demand for cellular data traffic, we are required, among other things, to continue our investment in our 4G network, invest in 5G network and to continue the upgrade of our transmission network to allow larger capacity and higher data speed rates. To meet the growing demand for landline data traffic and find more cost effective alternatives for the capacity we purchase from Bezeq who owns a widespread landline broadband infrastructure, we have invested in deploying our own infrastructure, invested in IBC and entered an indefeasible right of use agreement with IBC for its network (see also "Item 4. Information on the Company – B. Business Overview – Network and Infrastructure – Fixed-line Segment – Fixed-line Infrastructure – Investment in IBC and sale of fiber-optic infrastructure to IBC"). Such endeavors are both costly and require management attention which could have been directed elsewhere. Further, in March 2020, the MOC determined that the replacement of our and another operator's 850 MHz frequencies with frequencies compatible with international standardization for our region will be effected in several phases. Currently, our 2x10 850MHZ frequencies were reduced and replaced with other 2x5 MHz 850MHZ frequencies; in the next phase - at a later date to be determined, the MOC will enable us to receive a 800 frequencies band and the final phase - at a later date to be determined, the aforesaid 850MHz frequencies band will be annulled and instead we will be offered another band in the 800 frequencies. Such replacement, will involve material investments in our networks, including the replacement of radio equipment in the majority of our cellular sites. Some of the frequencies we use were allocated to us for a limited period, including the frequencies we and our sharing partner won in the 2020 frequencies tender and the frequencies originally allocated to Golan. In a public hearing published by the MOC in December 2020, in relation to the shutting down of 2G and 3G networks in Israel, the MOC opined that our 2G and 3G frequencies' allocation shall terminate on 2022 and the MOC consider extending such allocation until 2025, in line with the timeline proposed in the hearing for the shutting down of the networks. The MOC shall further consider allocation of such frequencies thereafter, including by conducting a tender or extending the present allocation. In addition, The MOC may further decrease the frequency band allocated to us under the 2020 frequency tender, or demand that we share it with other operators, after the lapse of four years from its allocation. If the MOC doesn't extend our 2G and 3G frequencies or if alternate frequencies aren't allocated to us, or if our new frequencies bands under the 2020 frequency tender are reduced or shared with other operators, we may not be able to maintain our quality of services. In addition, the frequencies we and our sharing partner won in the 2020 frequencies tender require us to make substantial investments in purchasing the frequencies and in our networks, including building new cell sites and making changes to the majority of the existing ones. The difficulties in obtaining the required consents and permits, may prevent us from meeting the deployment requirements set in our license which may entitle us to performance based incentives, as well as expose us to additional litigation and such litigation's consequences. See also "We may not be able to obtain permits to construct and operate cell sites". Furthermore, the frequencies won by our sharing partner, shall be available for usage by us subject to conditions agreed with the sharing partner, including with regards to their usage period, and after such frequencies are no longer available to us, we may not have sufficient frequencies to maintain prior quality. See "Item 4. Information on the Company – B. Business Overview –– Network and Infrastructure – Cellular Segment – Spectrum allocation" and "Network sharing agreement", including with regards to our dispute with Xfone. If we fail to compensate for increased expenses or investments (especially in comparison to our competitors, not all of which will be required to make similar investments or pay increased expenses), due to, among other things, the competitive environment, our results of operations may be materially adversely affected. Transferring to new technologies and using new equipment, such as our transfer to a new OTT TV services platform, exposes our systems and services to malfunctions, whether due to malfunctions not discovered and resolved in the new technology or equipment or whether due to the transfer process itself.

Production

Total Risks: 2/23 (9%)Below Sector Average

Employment / Personnel1 | 4.3%

Employment / Personnel - Risk 1

The unionizing of our employees may impede necessary organizational and personnel changes, result in increased costs or disruption to our operation.

From 2015 we have been a party to several collective employment agreements with our employees' representatives and the Histadrut, an Israeli labor union and in April 2021, we entered into a new collective agreement. The collective agreements have consistently increased our employment costs. The agreement defines employment policy and terms in various aspects, including payments to the employees, procedures relating to manning a position, change of place of employment and dismissal, including management's and the employees' representative's respective authority with regards to each. As a result, our day-to-day operations and our ability to execute organizational and personnel changes is more limited, cumbersome, costly and lengthy, and requires more management attention that would otherwise be available for our ongoing business. On several occasions, the Histadrut announced a labor dispute at the Company and on one occasion the employees' representatives commenced a sudden and unlawful strike which ended the following day. Our subsidiary Golan is a party to a different collective agreement, valid until October 2022. Further disagreements with the employees' representatives or an inability to reach a new collective employment agreement, may trigger work stoppages or other disruptions to our operation and an adverse impact on our services or customer service, changes may fail to be executed or be executed in a materially different way than planned, resulting in substantially lower savings than expected or requiring materially increased employment costs. Increased costs, inability or limited ability to make organizational and personnel changes, as well as work stoppages or other disruption to our operations and limitations on management's discretion, may damage the efficiency and quality of our operations, and may lead to damage to our reputation, increased customer churn, loss of market share and reduced profitability.

Supply Chain1 | 4.3%

Supply Chain - Risk 1

Changed

We rely on certain suppliers for key equipment and services. We do not own a widespread infrastructure in the landline market for the private sector and are dependent on infrastructure providers.

We depend upon a small number of suppliers to provide us with key equipment and services. For example, Nokia Networks Israel, or NSN, provides our GSM/GPRS/EDGE/UMTS/HSPA/LTE core system, radio access network and related products and services; LM Ericsson Israel, or LM Ericsson, supplies part of our radio access network and related products and services based on UMTS/HSPA technology . We are further dependent on infrastructure providers for our internet connectivity, broadband infrastructure for the private sector (using the landline wholesale market and our IRU agreement with IBC), International Long Distance calls, or ILD, landline telephony (using Voice over Broadband, or VOB, technology), and OTT TV services. Those providers include Bezeq and Hot, which provide broadband infrastructure in Israel, TI Sparkle Ireland Telecommunications Ltd. and TI Sparkle (Israel) Ltd., or collectively TI Sparkle and Tamares Telecom Ltd., which connects the Israeli internet network to the global internet network, as well as Israeli telephony, via an underwater communications cable. We are dependent on Bezeq for the provision of our wholesale broadband infrastructure services (as IBC's infrastructure is more limited in scope). We are further dependent on IBC with regards to the infrastructure service we have committed to purchase from IBC in the next 15 years (10% of IBC's 'home pass'), which in turn is dependent on Bezeq for the deployment of its infrastructure using Bezeq's infrastructure. See also "Item 4. Information on The Company – B. Business Overview – Fixed-line Segment". In addition, our cellular end-user equipment sales have been dominated in recent years by Apple and Samsung products. See "Item 4. Information on the Company – B. Business Overview – Cellular Segment – Handsets" for additional details. Kaltura Europe Ltd. provides our TV content management platform, Vubiquity Management Ltd., or VU, provides us international content and content operation services for our OTT TV services. RGE Group Ltd., or RGE, ONE Sport TV services Ltd., or ONE, and Charlton Ltd., or Charlton, each provides us with unique sports content. The Israeli Public broadcasting corporation, or the Broadcasting Corporation, Keshet Broadcasting Ltd., or Keshet, and Reshet Media Ltd., or Reshet, provides us each with a license to use content on our TV service. Netflix International B.V., or Netflix, and Amazon Europe Core S.a.r.l., or Amazon, provide our TV customers with access to their variable content, including direct access to the Netflix and Amazon services from our set-top box. Israeli copyrights organizations provide us usage rights in content for our music and TV service. We rely on agreements with foreign carriers to provide cellular roaming capabilities to our cellular subscribers and ILD services to our cellular and landline subscribers. In general, if these suppliers fail or refuse to provide equipment, content or services to us that meet requisite quality standards or on a timely basis, at unfavorable terms to us or provide our competitors more favorable terms and conditions, or if these suppliers fail to produce successful and desirable products or content when no equivalent alternatives are available, or if such suppliers raise the pricing of their products or content (for example, TV sports content prices in Israel have substantially increased with the entry of additional competitors), we may be unable to provide services or products to our subscribers in an optimal manner until an alternative source, if one is available, can be found or the situation is rectified, which may harm our ability to compete and result in loss of customers and revenues or place our licenses at risk of revocation for failure to satisfy the required service standards and subject us to customers' lawsuits. Further, the Coronavirus may result in suppliers failing to supply us with equipment or services required for our continued operation, such as maintenance and construction of our network, due to absence of personnel, all of which may have an adverse effect on our results of operations.

Ability to Sell

Total Risks: 1/23 (4%)Below Sector Average

Competition1 | 4.3%

Competition - Risk 1

We face intense competition in all aspects of our business.

The Israeli telecommunications market is highly competitive in many of its elements. The competition level has increased substantially in recent years, following the entry of additional competitors and regulatory changes alleviating entry barriers and transfer barriers, which the MOC continues to advance. This led to price competition and erosion, high churn rate and high subscriber acquisition costs and adverse effects to our revenues and profitability. The current level of competition in most of the markets in which we operate and aggressive price plan offerings by our competitors are expected to continue. See also the "Competition" section under "Item 4. Information on the Company - B. Business Overview","-Competition – Fixed-line Segment– Internet infrastructure and Connectivity Business" and "– Telephony Business". Should the current level of competition in the cellular market continue, it will continue to adversely affect our results of operations. Any of the following developments materializing in our market, may result in increased competition and further materially adversely affect our profitability: - tariffs maintained at their current level or decreasing even further, including as part of a bundle;- services provided by our competitors not in line with the wholesale market criteria and not enforced by the MOC; unfavorable pricing harming our ability to provide competitive bundles or change of current regulation to a less favorable one; or further escalation of the competition by Bezeq and Hot, such as Hot continuing to decrease its retail services and lack of 'margin squeeze' prevention regulation and Bezeq commencing the sale of fiber-optic infrastructure service, given their dominance in the landline market, or if Bezeq or Hot commence providing fiber-optic internet infrastructure services . See also "Item 4. Information on The Company –B. Business Overview – Government Regulations – Fixed-line Segment – Landline";- annulment or further relaxation of the structural separation imposed on each of the Bezeq and Hot groups or further consolidation of Bezeq's subsidiaries and their operations, given their dominance in the landline telephony and infrastructure markets and TV market and the strong financial support of Bezeq. See also "Item 4. Information on The Company –B. Business Overview – Competition - Communications groups and structural separation"; "-Government Regulations – Fixed-line Segment – Landline";- entrance of new competitors, including major global and local companies, to any of the markets we operate in, , or complementary services becoming competitive to our services, or the entry of existing competitors to additional markets or segments where they are currently not or less active, or competitors operating under substantially different regulation, detrimental to our operations,. See "Item 4. Information on The Company –B. Business Overview – Network and Infrastructure – Cellular Segment – Spectrum allocation" and "– Competition";- if current ability to self-provide communications services is substantially wider, including through an unlicensed third party; provision of better coverage than that provided by MNOs through the usage of several networks; or if non-universal cellular services would be allowed by certain entities;- IBC's failure to deploy widespread landline infrastructure which we can procure, given the growth of our TV and internet services and the substantially more expensive wholesale alternative. Further, this may limit our broadband bandwidth offering in comparison to our competitors who have their own infrastructure, since currently our offering of such service is mainly dependent on the landline wholesale market services. See "Item 4. Information on the Company –B. Business Overview –– Competition – Fixed-Line Segment";- our inability or failure to purchase additional frequencies or to purchase frequencies in an amount equal to our competitors or in a sufficient amount, or to make the necessary investments in our networks or in our business in general, in order to maintain our competitive standing, given our financial situation or otherwise. See "- Our operating results, profitability and cash flow have decreased significantly in the past several years, resulting in loss. Further decline may adversely affect our financial condition" and "We may be adversely affected by the significant technological and other changes in the telecommunications industry" below;- regulatory or technological changes facilitating even further transfer of customers among operators;- some of our competitors may be able to obtain better access and terms of engagement with international suppliers or foreign carriers, than we do, due to their affiliation with international groups or exclusivity arrangements;- if our services are adversely affected by, or we are required to bear the costs of, a frequencies change or frequencies reduction, which do not affect our competitors. See "We may be adversely affected by the significant technological and other changes in the telecommunications industry" below; or - if malfunctions or cyber attacks harm our communications services and our image.

See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?

Risk factors are any situations or occurrences that could make investing in a company risky.

The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.

They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.

It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.

How do companies disclose their risk factors?

Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.

Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.

Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.

According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.

How can I use TipRanks risk factors in my stock research?

Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.

You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.

Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.

A simplified analysis of risk factors is unique to TipRanks.

What are all the risk factor categories?

TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.

1. Financial & Corporate

Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.

2. Legal & Regulatory

Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
Regulation – risks related to compliance, GDPR, and new legislation.
Environmental / Social – risks related to environmental regulation and to data privacy.
Taxation & Government Incentives – risks related to taxation and changes in government incentives.

3. Production

Costs – risks related to costs of production including commodity prices, future contracts, inventory.
Supply Chain – risks related to the company’s suppliers.
Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.

4. Technology & Innovation

Innovation / R&D – risks related to innovation and new product development.
Technology – risks related to the company’s reliance on technology.
Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.

5. Ability to Sell

Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
Competition – risks related to the company’s competition including substitutes.
Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
Brand & Reputation – risks related to the company’s brand and reputation.

6. Macro & Political

Economy & Political Environment – risks related to changes in economic and political conditions.
Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
International Operations – risks related to the global nature of the company.
Capital Markets – risks related to exchange rates and trade, cryptocurrency.

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