Welcome everyone, and thank you for joining us on Bezeq's 2023 third quarter earnings call. I'm Tobi Fischbein, Chief Financial Officer of the Bezeq Group. Joining us from senior management team, we have Mr. Gil Sharon, Bezeq's Chairman, Mr. Ran Guron, Bezeq's CEO, and Mr. Ilan Sigal, CEO of Pelephone and yes. Before we start, I would like to direct your attention to the safe harbor statement on slide two of our Q3 2023 investor presentation, which also applies to any statement made during today's call. I would like to inform you that this event is being recorded. After presenting our quarterly results, we will have a Q&A session. Given the current situation in Israel, if a siren is activated, please do not disconnect from the call. We will take a 10-minute break to move to a safe room and then return to the webcast.
I would also like to use this opportunity to thank Gil for all his dedicated and hard work for the group. Gil has been with us for the last three years, bringing us back to growth, leaving us with a sound group strategy, excellent results, and significant potential ahead. We wish you all the best and success in your future endeavors. With that said, let me now turn the call over to Gil for his opening remarks. After his introduction, I will continue the presentation of our group financial highlights, followed by Ran, who will discuss Bezeq Fixed Line results, and Ilan, who will cover the results from Pelephone and yes. Gil?
Thank you, Toby. First, I would like to thank all Bezeq Group employees for their courage and dedication to ensure continuity of communication services to everyone all over the country since the beginning of the war. We provide essential services which are especially vital in emergency times, and I'm extremely proud of how quickly our employees mobilized and at times put themselves at risk to strengthen our networks and support not only our customers, but also security and rescue forces. Furthermore, recently, I recently announced my intention to resign in a few months after assuring a smooth transition. I'm very grateful for my time as chairman of the group, during which we successfully implemented a growth strategy that led to strong business results and consistent growth in revenues and profits.
I thank each and every one of my colleagues from the board of directors, the management team, and the employees for their excellent teamwork, commitment, and support. Your efforts are the key to our success, and I'm proud to have led this talented team. Now, let's discuss our third quarter results, beginning on slide three. We again showed strong execution on our growth drivers, with robust fiber take-up in Bezeq Fixed Line and yes, as well as consistent growth in 5G subscriber plans in Pelephone. As a result, we saw stable revenues despite the MOC decrease in telephony tariffs, along with higher adjusted net profit and adjusted EBITDA. Sustainability continues to be a top priority for us, and in the quarter, we published our fourth consecutive annual ESG report, which now includes also the key subsidiaries. On the following slide, we address the impact of the war on the group.
Thus far, the effects of the war have not had a material impact on the group's activities and business results. However, the consequences of the war are still unpredictable and depend on its scope and duration, which may change our current assessment. At this point, we're seeing higher demand in the business sector for projects and remote connections and an increase in internet traffic and fixed line telephony usage, with short-term decline in customer churn and saving in operating expenses. On the negative side, we see a decrease in roaming activity and sales of mobile handsets at Pelephone. We also expect a short-term decrease in the pace of fiber deployment and the waiver of charges to evacuated residents. Our exposure to foreign currency and the CPI are hedged in accordance with our company policy. We're closely monitoring the situation and will update our assessments as developments occur.
On the following slide, we show our technology and business roadmap and the progress it's achieved so far. In fiber, today, we have over two million homes passed, already surpassing our 2023 target. Total take-up of 532,000 fiber subscribers on our network, representing a 26% penetration rate. In the midterm, our goal is to reach 2.7 million homes, about 85% of Israeli households. In Pelephone, 5G subscribers reached approximately 1 million, representing 38% of total subscribers, which contributed to a 14% increase in service revenues compared to Q4 2020. In the midterm, we expect 5G users to reach 80% of all subscribers as we continue to provide excellent value for our customers. In yes, total IPTV subscribers reached 383,000, or 67% of total subscribers.
We remain the largest Israeli IPTV operator, and we expect roughly all our yes subscribers to migrate to IP in the midterm, leading to significant OpEx and CapEx savings. On the next slide, we present the group's financial highlights for the third quarter, that show that in addition to growth in adjusted EBITDA and adjusted net profit, free cash flow significantly increased to ILS 406 million, and we continued to decrease net debt. Turning to the next slide, the group's operational highlights for the third quarter showed strong results across the board. For Bezeq fixed line, fiber net adds were 82,000, with 40% growth year-over-year in fiber deployment. Additionally, retail Internet ARPU was ILS 124, an increase of ILS 2 compared to the previous quarter and ILS 8 compared to the corresponding quarters.
For Pelephone, cellular service ARPU, excluding interconnect fees, grew 4.4% to reach 47 shekels, with cellular service revenues, excluding interconnect fees, increasing by 2.8% to ILS 371 million for the quarter. For yes, total TV subscribers and ARPU remained stable compared to the corresponding quarter, despite the competitive market. All companies in the group remain focused on their core activities and are achieving and are actively leading growth initiatives despite the war. We continue to invest in the infrastructure and services we provide, with a long-term vision to continue to lead the telecom market in Israel. Now, let me turn the call back to Toby to discuss financial results. Thank you.
Thank you, Gil. The next slide shows the group's key financial metrics for the third quarter. Revenues were stable, despite a second tranche of the MOC telephone reform in Bezeq fixed line and a decrease in Pelephone interconnect revenues. Adjusted EBITDA rose 2.9% to ILS 974 million, and adjusted net profit grew 13.7% to ILS 357 million due to lower operating and financial expenses. Free cash flow significantly improved to ILS 406 million for the quarter due to timing differences in working capital. Turning to the next slide for a comparison of the first nine months results. Revenues, adjusted EBITDA, and adjusted net profit all grew compared to the corresponding period. Revenue growth was driven by increases of 2.3% in Bezeq fixed line and 4.9% in yes revenues.
Moving to the next slide, where we show the key operational metrics for the past 5 quarters. On the subscriber side, we saw growth in retail Internet subscribers, as well as Pelephone subscribers, which grew by 25,000, the strongest quarterly growth in the last year. On the ARPU side of this slide, retail Internet ARPU grew by ILS 2, or 6.9% year-over-year. Cellular ARPU, excluding interconnect fees, also rose by ILS 2 due to an increase in roaming and the transition to 5G plans. The decrease in telephony average revenue per line is due to the second tranche of the MOC tariff reduction. Turning to the next slide, we address our continued effort to reducing debt and maintaining a strong balance sheet. Net debt decreased by over ILS 600 million for the quarter, or 11% year-over-year, to ILS 5 billion.
The group's net debt to EBITDA ratio decreased from 1.7 times a year ago to 1.5 times as of September 30, 2023. Moving to the next slide, we would like to reiterate our guidance, which remains unchanged from the previous quarter, when we updated our expected adjusted net profit from ILS 1.2 billion to ILS 1.32 billion for the full year of 2023. We have already reached our target of 2 million homes passed with our fiber network by the end of October. I will now turn the call over to Ran, who will share more detailed results from our fixed line operations.
Thank you, Toby. In the third quarter, revenues were stable, with growth in Internet services and cloud and digital, offset by decrease in telephony revenues due to the MOC tariff reduction. Adjusted net profit grew 6.3% to ILS 252 million for lower operating and financial expenses. Fiber net adds were 82,000, and the number of home passed reached over 2 million, with take-up of 532,000 fiber subscribers as of today. The next slide details the financial highlights for Bezeq fixed line. Despite the decrease in telephony revenues, adjusted EBITDA was slightly up. A significant improvement in free cash flow, a 190% increase to ILS 310 million, was mainly driven by timing differences in working capital.
On the next slide, we highlighted our results for the first nine months of the year, which are positive across the board and show the same trends that we saw for the quarter. The following slide showed our achievements in broadband Internet as we reach revenues of ILS 489 million in the third quarter, representing an 8.2% increase year-over-year. Broadband lines increased slightly year-over-year, and Internet ARPU increased by 6.9% to ILS 124 due to continued growth in fiber customers take-up. The next slide details our fiber take-up, which reflect another strong quarter, both in retail and wholesale. On the retail side, the acceleration plan implemented in the second half of 2022 to improve take-up is clearly working.
In the third quarter of 2023, we achieved 46,000 net adds, pushing total retail fiber take-up to 335,000 as of the end of the quarter, and 350,000 today. On the wholesale side, our IRU agreement with Partner, which began in the first quarter this year, continues to accelerate our wholesale take-up with 36,000 net adds for the quarter, for a total of 182,000 subscribers as of today. In the following slide, we can see that by the end of the third quarter of 2023, we passed over 1.9 million homes, and as of today, we passed over 2 million homes, meeting the target we set in our, in our guidance for the full year.
Fiber net adds totaled 82,000 in the third quarter, and total fiber take-up reached a total of 532,000 subscribers as of today. Moving forward to the next slide, cloud and digital revenue grew by 4.8% year-over-year, driven by growth in virtual exchange services, while transmission and data services revenues grew by 2.5%. The second stage of the MOC tariff reduction impacted telephony revenues, while timing differences in infrastructure project led to the decrease in other revenues. On the operating expenses slide, salaries was up slightly, mainly due to salary update and employee recruitment relating to the fiber project. Operating expenses decreased year-over-year due to the lower interconnect payment to operators and the cancellation of the payment to the Universal Fund of 2023, following an MOC industry-wide decision.
Other expenses were up due to the one-time provision of ILS 75 million for special grant to employees, pursuant to an agreement, to the labor agreement. Moving to the next slide, to summarize. We had another strong quarter in the fixed line. The acceleration plans continues to bring gains with growing retail fiber take-up, which drive ARPU growth. Higher broadband and business sector revenues continued to offset the impact of the MOC telephony tariff reduction. With that, I will now turn the call to Ilan to discuss Pelephone and yes.
Thanks, Ran. Pelephone posted its highest quarterly revenues from service, services excluding interconnect since 2017, with 2.8% growth, driven by an increase in postpaid customers in 5G subscriber plans, contributing to the ILS 2 increase in ARPU. In addition, we recently acquired Roamability, a company specializing in providing solutions in the global roaming market through the eSIM technology. The next slide, we show our continued turnaround in service revenues, excluding interconnect fees, which totaled ILS 371 million, compared to ILS 361 million in Q3 2022, and ILS 280 million in Q3 2020. The next slide shows Pelephone's financial highlights in more detail.
Adjusted net profit was impacted by lower interest income from the parent company, while free cash flow significantly increased, mainly due to payment of ILS 88 million to the MOC for the acquisition of frequencies in the corresponding quarter. Moving to the next slide, in the first nine months of 2023, revenues were up 0.8%. Adjusted EBITDA was down 0.9%, and adjusted net profit declined 12.3%, as depreciation expenses increased due to an update in estimated right of use assets for the past periods recorded in the corresponding period. Free cash flow was impacted by the upfront payment of frequencies fees for 2023 in the current period, timing differences in working capital, and the payment of ILS 88 million to the MOC for the acquisition of frequencies in the corresponding quarter.
Moving on to operational metrics on the next slide, 5G subscribers rose to 961,000 for a 30.2% increase. There are approximately 1,000,000 subscribers on 5G plans as of today, representing 46% of postpaid subscribers. Pelephone ARPU, excluding interconnect fees, increased by ILS 2. Moving on to yes, on the next slide, revenues grew 4.1%, driven by the launch of the TV plus Bezeq fiber bundle and our partnerships with international content providers as Disney and Netflix. Our profitability improved markedly, with adjusted EBITDA increasing to 20.8% to ILS 58 million. For the first nine months of the year, adjusted net profit reached ILS 18 million, compared to an adjusted net loss of ILS 29 million in the corresponding period, driven mainly by higher revenues. The next slide shows yes' continued evolution.
As you can see, yes has continued its revenue growth since the fourth quarter of 2022. Looking at the key financial highlights for yes in the next slide, revenues increased year-over-year for the fourth consecutive quarter by 4.1% to ILS 328 million, mainly driven by the TV plus Bezeq fiber bundle and agreements with leading international content providers. Adjusted EBITDA and adjusted net profit were both up due to an increase in revenues and decrease in salaries, while the latter benefited also from lower depreciation expenses. Turning to the next slide, the results for the first nine months of 2023 reflected the same trends in the revenues and profitability, with revenues increasing and driving both our adjusted EBITDA and adjusted net profit higher.
Free cash flow increased due to improved business results as well as timing differences in working capital. Moving on to the following slide on the operational metrics for yes, total subscribers remained basically flat despite the intense competition in the market, and 67% of yes subscribers are now watching IPTV. STING TV subscribers continued to grow and reached 118,000 as of today, with continued growth in fiber subscribers for yes, which reached approximately 32,000 as of today. With that, let me now turn the call back to Toby.
Thank you, Ilan. Moving on to Bezeq International, our continued focus on the ICT market mainly offset the decrease in consumer ISP activity revenues in the third quarter. Results for the first nine months showed strong growth in profitability, with adjusted EBITDA increasing 11.9% to ILS 150 million, and adjusted net profit increasing 64.5% to ILS 51 million due to cost savings and expansion in the B2B market. In the next slide, we cover the key financial highlights for the quarter. The slight decrease in revenues is due to reduced consumer ISP activity following the regulatory change that began in April of last year, but was offset by an increase in ICT activity. Free cash flow was positively impacted by timing differences in working capital. The next slide details the financial highlights for the first nine months of the year.
As mentioned, our focus on the B2B market is showing positive trends in profitability, with significant growth in both adjusted EBITDA and adjusted net profit, mainly due to lower consumer ISP expenses and a decrease in salary expenses. The increase in business service revenues due to ICT activity growth and the CloudEdge acquisition was offset by a decrease in consumer ISP revenue following the regulatory reform. Free cash flow was lower due to payments for retirement plans in 2023, as well as changes in working capital. Turning to the last slide. Overall, we had a strong quarter, and we are focused on executing on our strategy while maintaining sustainable growth. The execution of our strategy continues to be successful, evidenced by revenue and profitability growth.
Lastly, I would like to remind our listeners that after this call in English, we will hold an earnings call with Israeli investors and analysts in Hebrew. With that, I will open the Q&A session. If you would like to ask a question, please raise your hand virtually using the Raise Hand button in the Participants tab. In the mobile app, you can raise your hand by tapping the Raise Hand option in the More tab. As you hear your name, please unmute your microphone and ask your question. For the benefit of the people in the room, please introduce yourself and share the name of the company you represent. We will address questions as we see the hand raised. If you later change your mind about raising your hand, you can lower it by clicking Lower Hand, and I will now pause to poll for questions. We have our first question, from David Kaplan. Hi, David.
Hi, everyone. How are you? I guess I really just want to focus on equipment sales, particularly in the mobile sector, the handset sales. I know the iPhone 15 launch came in only towards the end of the third quarter. I imagine that the current situation in Israel is going to push those expected iPhone sales that were going to happen in the fourth quarter out into the first quarter a little bit. How does that impact expenses, specifically for the fourth quarter, when you think about marketing and you think about other associated expenses for handset sales?
So basically, you know, as you know, on handset sales, the margin is not very high. So there will be some delay in those revenues, and on the other hand, we will have also a saving or relative saving on the cost side. So it's not going to have a meaningful impact, you know, on the group results.
I'll continue, David. As you said, the iPhone 15 launched in the end of the third quarter. So the first quarter was supposed to be a big launch for fifteen in Israel. As you said, I believe that it will be postponed to the first quarter of 2024. So those sales will not go away. They will probably postpone to the first quarter of 2024. There is a demand for iPhone 15. The shipments are low right now, and I believe that they will come back later on the first quarter.
So just related to the shipments having not come yet, when exactly do you pay for those, and what potential impact, therefore, would the fluctuations in the US dollar have on those shipments arrive?
So we have not paid, at least not for the vast majority of those handsets yet. So we will only have to pay them later as, you know, they arrive. And yes, we have some, you know, FX exposure there. As long as when we get them, you know, the, the FX is higher, then, we will be, exposed to that higher rate. But, no, we take that into account in our calculations.
We pay for the handsets only when they come to Israel and they are in the stores, not before that.
So not when they're in the port, but only when they're in the stores?
Yeah, exactly.
Okay. So in theory, you, this spike in the US dollar didn't really have a major impact on Bezeq, I take it?
The impact that it will have relates actually to the selling price. Because if there is a spike in the US dollar and we can translate that, at least partially, to the selling price, the impact will be lower. If the case is not like that, then the impact will be higher.
Okay, thanks.
You're welcome. Next question from Xi, from Citi. Hi, Xi.
Hello. Hi, sorry, my camera doesn't work for some reason. I just have one question, please. I'm just wondering if you could elaborate what could be the potential impact on your roaming revenues, given the current situation in Israel? And also, if you don't mind, could you remind us what, when we look at roaming revenues and how should we think about the impact on the EBITDA level, which I presume is usually to be a high margin kind of revenues? Thank you.
I see. We see as a result of the war, a significant decrease in roaming use for the fourth quarter. But let me just add that the fourth quarter is not as strong as the third one, and the third one was full of roaming activity. But still, we will feel the impact on Pelephone in the fourth quarter. I believe that, like in the past, Corona, we will see when the war will end, we'll see roaming revenues recover very, very quickly.
I will add, Xi, that based on the trends that we are seeing right now, you know, although we don't quantify this impact, we don't expect it to be significant at the group level in Q4. We have a follow-up question from David Kaplan. Yes, David.
Yeah. Hi. Just I guess on cash flow then for the fourth quarter, I only jumped back on because I let other people have a chance, but no one else wanted to ask any questions. I figured I'd come back. On cash flow for the fourth quarter, on working capital in particular, I guess it ties in, you know, to what we were talking before about the handset sales. But inventories in general, with the disruptions that are probably happening with shipments into Israel, how do you foresee working capital looking in the fourth quarter?
Well, not just because of inventories. You know, other than handsets, we, you know, in our business, we don't deal a lot with inventories, and we don't, you know, hold a lot of that. But, as you saw, a very strong Free Cash Flow performance in Q3. In Q4, we expect, actually those timing differences to have the opposite effect. There are some payments to suppliers that have been delayed from the end of September to the beginning of October. And there are some other items that, in terms of, you know, their nature, they will take place in Q4 rather than in Q3.
Having said that, and although we don't give guidance for Free Cash Flow, we still expect to be on track with our own plans for Free Cash Flow for the whole year. Thank you, David. Any other questions? At this stage, we see no other questions. So let me thank you all for taking the time to join us today. Should you have any follow-up questions, please feel free to contact our Investor Relations department. We look forward to speaking to you on the full year 2023 earnings call. Thank you.