Vivo’s 3Q losses widen on higher costs, lower growth

30 Oct 2006

Brazilian mobile operator Vivo Participacoes reported widening third-quarter losses in the three months to 30 September 2006 on the back of a rise in operating costs and weak revenue growth. Vivo, a 50:50 joint venture of Portugal Telecom and Spain’s Telefónica Móviles said third-quarter losses reached BRL196.9 million (USD92.2 million), up 64% on the BRL120.1 million loss posted in Q3 2005. On a more positive note, the loss was better than the second quarter of its current fiscal year when losses reached a sizeable BRL493.1 million. Earnings before interest, taxes, depreciation and amortisation (EBITDA) dropped from BRL796.6 million to BRL715.6 million and the EBITDA margin, a common measure of profitability, slipped to 25.3% from 28.3% a year earlier.

Vivo says it has experienced a sharp rise in interconnection fees in 2006, with third quarter service costs, including fees paid to other operators, rising 78.7% year-on-year to BRL664.3 million. The bottom line was also impacted by weaker than expected revenue growth. Net revenues were up only 0.5% year-on-year and 8.7% quarter-on-quarter at BRL2.82 billion. Vivo, for a long time Brazil’s leading mobile operator by subscribers, has struggled to make money in an increasingly competitive market. It has steadily lost market share to Telecom Italia’s local unit, TIM Brasil, and to Claro, owned by Mexico’s América Móvil. At the end of September Vivo had a 29.9% share of the domestic mobile market, compared with 25.1% for TIM Brasil and 23.1% for Claro. Vivo ended the quarter with 28.7 million subscribers, down 0.4% on Q3 2005, but up 0.7% on the previous quarter. However, it is struggling to sign up users as quickly as its rivals and is also hampered by a poor customer mix which means that the vast majority of its base is made up of lower-value pre-paid customers. It finished the quarter with 5.24 million post-paid clients, down 7.2% year-on-year, while pre-pay clients totalled 23.48 million, up 1.3% from a year earlier and 1% from the previous quarter.