May 5 (Bloomberg) -- Tim Participacoes SA, the Brazilian unit of Italy’s largest phone company, posted a loss in the first quarter after the number of subscribers fell and customers cut spending.

The loss widened to 144 million reais ($67 million) from 125.5 million reais a year earlier, according to a filing posted on the Web site of Brazil’s securities agency. Revenue was little changed at 3 billion reais. The loss was wider than the 11.5 million-real loss estimated by nine analysts in a Bloomberg survey. Analysts projected revenue of 3.2 billion reais.

Tim, the third-largest wireless carrier in Brazil, increased marketing spending last quarter to lure long-term customers. Still, the company continued to attract more prepaid users in the period, rather than the contract subscribers it covets. Because prepaid customers pay less per month, average revenue per user dropped 12 percent from a year earlier to 26 reais.

“Margins should be under pressure in the first half of the year and recover only in the second half,” said Beatriz Battelli, an analyst at Rio de Janeiro-based Brascan Corretora.

Contract subscribers accounted for 17 percent of Tim’s customer base in the first quarter, down from 21 percent a year earlier.

Cleanup Plan

The number of Tim subscribers declined to 36.1 million from 36.4 million at the end of December, according to Brazil’s telecommunications agency. The drop stemmed from the attempt to unload less valuable customers -- what Chief Executive Officer Luca Luciani called “a cleanup of the client database.”

The company dropped those customers in a bid to reach a 23 percent profit margin, excluding interest, taxes, depreciation and amortization. That margin was 20.2 percent in the first quarter.

A main challenge for 2009 is to “revert the trend of deterioration of the contract subscriber base and start to grow again,” Luciani said today in a statement. In the second half, he expects to have “faster revenue growth that, coupled with our efficiency plan, will put us en route to profitability growth.”

Even while disconnecting some users, the carrier boosted marketing and sales expenses by 19 percent to 709 million reais last quarter. Tim had 24 percent of Brazil’s mobile-phone subscribers at the end of March, according to the country’s telecommunications agency, known as Anatel.

“Tim is suffering now in the hope it will reap the benefits in the future,” said Alexandre Garcia, an analyst at Raymond James & Associates Inc. in Sao Paulo. “The marketing expense pressure was high.”

Tim’s shares rose 1.3 percent to 3.79 reais in Sao Paulo trading today. The stock dropped 51 percent last year, falling more than the shares of rival Vivo Participacoes SA and the Bovespa index.

Vivo, owned by Telefonica SA and Portugal Telecom SGPS, is Brazil’s largest mobile-phone carrier, followed by America Movil SAB’s Claro unit.

To contact the reporter on this story: Heloiza Canassa in Sao Paulo at hcanassa@bloomberg.net

Last Updated: May 5, 2009 22:17 EDT