* Q3 profit 332 million shekels vs 313 million forecast
* Q3 revenue 1.729 bln shekels vs 1.706 bln forecast
* To pay dividend of 4.03 shekels/shr
* Shares up 1.7 percent in Tel Aviv
(Recasts, adds details, analysts comemnts, share reaction, changes dateline from TEL AVIV)
By Steven Scheer
JERUSALEM, Nov 10 (Reuters) - Cellcom, Israel's largest mobile phone operator, said on Wednesday it plans to petition Israel's High Court to halt a government decision to slash lucrative interconnect fees.
Like its rivals, Cellcom is also preparing for the move through both "our operational efficiency as well as ... identifying additional sources of revenue," Chief Executive Amos Shapira said as the company reported a higher than expected third-quarter profit.
In the first phase beginning in 2011, interconnect fees will fall to 0.0687 shekels from 0.25.
"After reviewing the decision we intend to shortly file a petition with the Israeli High Court of Justice, although we cannot predict the ultimate outcome of such a petition, if filed," Shapira said.
Prior to the Communications Ministry's order in September, mobile operators had lobbied against the plan, arguing that interconnect fees in Europe were higher and that profits would be harmed.
Cellcom remained the leader in a highly saturated market in the third quarter with its subscriber base growing by 35,000 to 3.376 million to stay ahead of rival Partner Communications's 3.133 million.
Competition will intensify further in 2011 with the entry of a number of mobile virtual network operators (MVNOs).
Leader Capital Markets analyst Alon Glazer said that Israel's mobile sector is so mature that annual growth is expected at just 2 percent to 3 percent.
"Cellcom is prepared in the best manner to meet the expected changes in the market," Glazer said, citing business focus and operational efficiency. "However, there are questions regarding the influence of future regulatory changes in the near term."
He reduced his target price for Cellcom shares to 123 shekels from 140 shekels.
Q3 PROFIT
Cellcom posted a third-quarter net profit of 332 million shekels ($91 million), compared with 289 million shekels a year earlier. Revenue was up 3.2 percent at 1.729 billion shekels, boosted by a rise in content and other service revenue such as text messaging, while earnings before depreciation, interest, taxes and amortisation (EBITDA) increased 9.3 percent to 716 million shekels.
The company was forecast by analysts to earn 313 million shekels, with EBITDA at 684 million shekels and revenue at 1.706 billion, according to a Reuters poll.
"The results were very strong with record profitability but the real story lies on what it will do in 2011 not really what it did in 2010," said Liat Glazer, an analyst at the Excellence Nessuah brokerage.
It said it would pay a dividend of 4.03 shekels a share on Dec. 29. Cellcom paid a 3.13 shekels for the second quarter.
"Cellcom continues to grow its top line, be aggressive on costs, generate strong free cash flow, pay very high dividends and remains a high quality company," UBS analyst Darren Shaw said in a note to clients.
Its shares closed 1.7 percent higher at 123 shekels in Tel Aviv and opened 1.2 percent higher at $33.67 in New York.
On Tuesday, Partner reported quarterly profit of 309 million shekels, from 263 million a year earlier. ($1 = 3.64 shekels) (Additional reporting by Tova Cohen; Editing by Greg Mahlich)