Domestic operations drag down Telefonica’s first quarter results

13 May 2011

Spanish telecoms giant Telefonica has released its financial results for the first three months of 2011, revealing that consolidated net income for the period stood at EUR1.624 billion (USD2.3 billion), 1.9% lower than in the same period a year earlier. The result was lower than had been expected by analysts, which according to Bloomberg had predicted net profits of around EUR1.74 billion, and the company’s domestic operations have been pointed to as one of the key factors for the decline.

Consolidated revenues for the group in 1Q 2011 were up at EUR15.435 billion however, representing a 10.8% year-on-year increase, although this was driven in part by Telefonica’s full consolidation of Brazil’s largest cellco by subscribers Vivo Participacoes SA, which until October 2010 was only partly consolidated. In organic terms Telefonica said that revenue had increased by 1.4% against 1Q10 thanks to increased turnover at both its Latin American and European units, which reported 5.7% and 2.4% y-o-y increases respectively, helping to offset a 5.7% revenue decline in Spain. The company also noted that growth in turnover from mobile data services in 1Q11 had been particularly strong, up 18.6% against the same period a year earlier, consolidating its position as one of the key growth drivers for the company. Group operating income before depreciation and amortisation (OIBDA) meanwhile for the three month period was EUR5.574 billion, up 9% y-o-y on a reported basis but down 1% in organic terms, with Spain once again dragging results down; the group’s domestic unit posted a 10.5% drop in OIBDA in organic terms for the first quarter of 2011.

In operational terms, and with the company claiming to have ‘focused its commercial strategy on value rather than volume’, at the end of March 2011 Telefonica reported that its total accesses stood at 290.5 million, up 6% against the same date a year earlier. By access type, the group’s mobile subscribers numbered 223.1 million at the end of 1Q 2011, up 8% year-on-year, while it also noted that as a result of its efforts to increase higher-value customers post-paid subscribers accounted for 57% of net additions in the period; at end-March 2011 contract customers totalled 70.6 million, up 14% y-o-y in organic terms. Telefonica also noted that at the end of the quarter it had 26.5 million mobile broadband subscribers across all of its operational units, while retail fixed broadband accesses stood at 17.4 million, up 9% against end-March 2010. Fixed voice subscribers meanwhile totalled 40.9 million at the end of the quarter, down 2% in organic terms against the corresponding period in 2010. Telefonica noted that the bundling of fixed voice, broadband and pay-TV services remain key to its growth strategy, and important in controlling churn, and the company claimed that 89% of retail fixed broadband accesses are bundled as part of either a double- or triple-play package.

Commenting on the results, Cesar Alierta, Telefonica’s CEO, noted: ‘First quarter results once again highlighted the value of Telefonica’s differentiated profile. Our strong diversification, the scale of our business and our integrated management model have allowed us to increase our revenues and maintain a high operating efficiency despite the negative performance of our business in Spain. The results for the first three months of the year are in line with our own expectations and affirm our full year guidance. Latin America now accounts for 45% of Telefonica’s revenue and OIBDA and continues to drive our growth, thanks to the solid performance of our operations in the region, especially in Brazil, where the growth accelerated during the quarter, consolidating our leadership. At the same time, the strong uptake in mobile broadband and the development of new initiatives to capture revenues from services beyond connectivity enabled us to expand our access base and to strengthen our positioning for sustainable growth in the future.’

Spain, Telefonica