Telefónica Móviles’ cost cutting combats Spanish stagnation and Latino losses

13 May 2003

Telefónica Móviles, the cellular subsidiary of Spanish telecoms giant Telefónica [NYSE: TEF], has posted a 25% rise in net profit year-on-year to EUR359 million, despite a sharp fall in revenues from its Latin American operations. The cellco is the runaway leader in the crowded Spanish mobile market, where mobile penetration is around 84%, but its customer base is now slowing and it signed up just 282,000 new domestic users in the first quarter of the year, 110,00 less than the country’s youngest cellco Amena. To combat stagnation, Telefónica Móviles de España (TME) introduced a number of schemes during 2002 aimed at encouraging pre-paid to contract migration. The strategy is starting to pay off; in the twelve months to 31 March 2003 post-paid subscriptions grew by a quarter, from 5.47 million to 6.81 million. In contrast, pre-paid take-up grew just 0.3% to 11.89 million, with the change in customer mix resulting in a vastly improved ARPU, up 2.6% in March to EUR27.6. The turnaround in ARPU helped TME to post a 1.9% year-on-year increase in revenues to EUR1.604 billion in the first three months of 2003.

Despite the impressive results in Spain, Telefónica Móviles’s total revenues fell further than expected, down 5.8% to EUR2.13 billion, as heavy currency depreciation impacted upon the revenues of its Latin American operations. Turnover in the region fell 22.3% year-on-year to EUR522.4 million, despite sizeable increases in customer base, up 87.9% over the period to total 19.32 million. At constant exchange rates, Telefónica Móviles claims that revenues were up 25%. Analysts predict that the company’s operations in Brazil, Mexico, Chile, Argentina, Peru, Puerto Rico, Guatemala and El Salvador will report improved results later in the year, as exchange rate comparisons become more favourable.

CIT's Datafile of European Telecommunications