The entry of six new players to Israel's mobile market this year has hammered encumbents including Bezeq's mobile arm Pelephone, where profits and revenue fell by 29 and 22.5% respectively.
Regulators are also hoping to liberalize fixed-line and Internet services by creating a wholesale market, under which Bezeq has agreed to give its rivals access to its broadband infrastructure in return for license concessions.
That carries the threat of a further erosion of the position of Bezeq, Israel's largest telecoms group.
But Pelephone also profited in the first quarter from the services it provides to virtual providers and the company said it was going to speed up deployment of high-speed internet lines to businesses and homes, where it is gaining customers.
"We continued to develop our advanced next generation network which has turned into a growth driver," said Bezeq CEO Stella Handler. "We will continue to invest in advanced infrastructures and customer service."
Investors are worried by talks between Israel's electricity utility and a group led by Sweden's Viaeuropa to create a competing high-speed network, which Israeli media say could be finalized in the next month.
But the results served to emphasize Bezeq's advantages as an encumbent and its shares rose 4.4%.
"We believe recent headlines around the ... project have been weighing on Bezeq's share but believe its long-term merit remains to be seen," said UBS analyst Roni Biron.
Bezeq earned NIS 497 million ($137 million) in the first quarter, down from NIS 582 million ($160 million) a year earlier as revenue slipped 12.2% to NIS 2.41 billion ($660 million). It was forecast in a Reuters poll to earn NIS 442 million ($121 million) on revenue of 2.41 billion ($660 million).
It was helped by lower financing expenses and capital gains from the sale of real estate and copper, which it buys in bulk to use in lines. While Pelephone's revenue and profits were well down, the operator – Israel's third largest – saw its subscriber base slip just 4.7% to NIS 2.741 million ($750,000).
"Bezeq ... is showing remarkable stability in such a competitive market and clearly its dominance in the fixed line market is helping it to weather the cellular storm," said Gilad Alper, an analyst at the Excellence Nessuah brokerage.
Bezeq reaffirmed its 2013 forecast of NIS 1.7-1.8 billion ($470-490 million) in net profit and earnings before interest, tax, depreciation and amortization (EBITDA) of 4.25-NIS 4.35 billion ($1.17-1.2 billion). It will pay a quarterly dividend of NIS 861 million ($237 million) plus a special dividend of NIS 500 million ($137 million).