(Reuters) - Cellcom, Israel's largest mobile phone operator, said on Tuesday it will offer television services over the Internet as it seeks to look for new sources of revenue amid heavy competition in the cell phone market.

"Entering a new and penetrated market will require investment and additional operating expenses in order to yield future revenues," Nir Sztern, Cellcom's chief executive, said without elaborating.

The move comes as Israel's Communications Ministry has encouraged Cellcom and its chief rival, Partner Communications, to enter the so-called Over the Top TV market to provide competition and lower costs to consumers.

Currently, Israel has two providers of multi-channel TV - cable company HOT and YES, the digital satellite unit of Bezeq Israel Telecom.

Sztern said Cellcom will offer an attractive alternative to HOT and YES.

"The company's OTT TV services are synergetic and complementary to the company's core business and shall help in retention of customers," he said.

A month ago, Cellcom reported a 70 percent jump in first-quarter profit, although its subscriber base fell 3.7 percent over the prior year to 3.049 million.

Israel's mobile phone industry was shaken up in 2012 with the entry of six new operators, sparking a price war that led to steep drops in subscribers, revenue and profit at Cellcom, Partner and Bezeq unit Pelephone.

Communications Minister Gilad Erdan welcomed Cellcom's decision to enter the OTT TV field, saying it will promote competition in the sector and "facilitate the reduction of the high price currently paid by the Israeli consumer for television services."

Packages offered by YES and HOT are above $60 a month.

Partner has said it also plans to launch television services.

(Reporting by Steven Scheer)