Embratel back in black, but 4Q losses worse than expected

13 Feb 2006

Brazilian long-distance telecoms operator Embratel reported net profits of BRL174 million (USD80.9 million) in the year to 31 December 2005, reversing a loss of BRL339 million in 2004, but net losses of BRL16.9 million in the fourth quarter, were worse than the market’s expectations. The telco saw costs increasing in the fourth quarter: third party expenses rose 42% year-on-year to BRL81 million while other costs soared 108% to BRL65 million. EBITDA of BRL354 million was 27% lower than consensus estimates in the final quarter and drove the company’s profits into the red.

Embratel’s core long-distance business is an increasingly worrying problem. Increased competition from local operator Intelig, other fixed line telcos and new VoIP providers is hitting the company hard. In 4Q 2005 Embratel’s revenues from DLD services fell 4% to BRL49 million, although they were partially offset by a 16% year-on-year rise in data services. However, the company has to cut prices to remain competitive and with revenues from long-distance services accounting for 65% of all turnover, local analysts find it difficult to see how Embratel will make up the anticipated shortfall in DLD revenues from its new services.