Recently I began looking at Israeli telecom companies, particularly the two giants, Partner Communications (Nasdaq: PTNR), and Cellcom Israel (NYSE: CEL), which represent 32% and 35% of all cell-phone coverage in Israel. I wanted to see whether they'd be worthwhile investments, and one of the metrics I was looking for was ARPU.

ARPU, or average revenue per user, is a common metric in the telecom industry that allows companies to see how much each customer is spending on their products on a monthly or yearly basis. The higher the ARPU, the better for the companies, because they're pulling more money from you.

Under the radar
Partner's latest annual report showed its 2010 ARPU to be the equivalent of 41.7 dollars per month. For comparison, Cellcom Israel had a slightly lower ARPU of 40.6 dollars, while American-based Sprint Nextel (NYSE: S) generated $48. But that wasn't enough for me; I wanted to see how that number trended over time. And that's where I found a problem: Comparing the 2008 annual report with the 2009 report gave me different ARPU numbers for the same time period. I thought at first I simply misread the numbers. Then I thought maybe the company made a typo. But I needed to investigate in more detail.

I looked into the footnotes in each of the report, hoping to gain more insight. At first, they looked identical. However, upon putting the footnotes side by side, I realized that the 2009 report added a tiny bit about including handset warranties in its calculations -- something the 2008 report didn't have. Look at the difference this made:

Partner accounting change

2005

2006

2007

2008
2008 report 156 158 158 159
2009 report 159 161 161 161

ARPU numbers are in shekels, the Israeli currency.

3 shekels can't even buy you a savory shawarma
Sure, you can argue that it's not that big of a deal, since, at the current exchange rate of 1 dollar to 3.61 shekels, the change in ARPU reporting makes only about an 80-cent difference. However, when you consider that this is only a monthly average, and that the company has nearly 3.2 million subscribers, the difference begins to add up.

What I'd like to see in the future
This was a subtle change that may have slipped past many people. I should note that Partner Communications did nothing illegal, and I don't want people to think that this makes the company a bad investment. It has some good attributes, including a 12.9% trailing dividend yield, which is significantly higher than Verizon's (NYSE: VZ) 5.3% and AT&T's (NYSE: T) 5.8%.

Still, when companies make such changes, they need to make it easier for individuals to spot them. In Partner's case, I would have liked to see a statement along the lines of "we made the following changes over the previous year when calculating ARPU." Or the company could have highlighted in prominent type that it was now including handset warranties in its calculations.

Foolish bottom line
Many companies make changes like this and bury them in the footnotes of the financial statements. I know that reading through financial reports can be a wearying burden, especially if you have to wade through footnotes. However, it truly pays to go through them, as you can gain much more insight into the company. It also puts you at a significant advantage over other investors who won't take the time to read them.

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