Customer base soars but profit margins squeezed at Telefónica

28 Feb 2005

Telefónica has reported that its net profit for 2004 was EUR2.88 billion, an increase of 1.6% compared to 2003, well below the 10% hike that analysts had been predicting. Increased competition in the company’s domestic wireless market and expansion costs in Latin America have been cited as having a bigger effect than originally expected. The figures come on the back of a 7% climb in revenue to EUR30.3 billion.

Cash cow Telefónica Móviles (TEM) was largely responsible for the group’s revenue growth, with year-on-year sales by the subsidiary growing nearly 16%. In terms of revenue contributions to the group total, TEM (40%) overtook Telefónica de España (36%) in 2004 to become the largest subsidiary by sales, with Telefónica Latinoamérica in third place chipping in with 23%.

The group’s CAPEX for 2004 was EUR3.8 billion, similar to 2003 levels. Although there was an 18% fall in spending for Telefónica de España, this was offset by increases in cellular investment (UMTS rollout in Spain, GSM in Latin America) and broadband investment by Telefónica Latinoamérica.

Telefónica’s overall managed customer base stood at 118.1 million at the end of 2004, an increase of over 26% from twelve months previously. This includes eight of the ten former BellSouth assets in Latin America which were consolidated in November 2004. Including the subscribers from the remaining two former BellSouth operators (in Chile and Argentina, both consolidated in January 2005), the total customer base was 121.9 million, with cellular subscribers accounting for 64%. ADSL connections in Spain and Latin America grew by 61% to 3.9 million.