Jazztel CEO Says Spanish Broadband Market Drop ‘Worrisome’

Jazztel Plc (JAZ), the Spanish phone company whose shares have outperformed Telefonica SA (TEF) this year, said the development for the Spanish broadband market is “worrisome” following the country’s first ever monthly drop in fast-Internet connections.

“The macroeconomic situation has clearly destroyed the market significantly even as the country still has low penetration and can grow,” Chief Executive Officer Jose Miguel Garcia said in an interview in Madrid today at the sidelines of the company’s presentation of its Jazzbox television service. “Lots of immigrants are returning to their homes and many youngsters are going back to their mum’s house.”

Jazztel shares, which earlier today had gained as much as 4.3 percent in Madrid trading, dropped as much as 1.6 percent to 3.57 euros following Gracia’s comments. The stock closed at 3.62 euros at the 5:30 p.m. close of trading. It has risen 2 percent this year while Telefonica dropped 15 percent.

Jazztel is luring clients with lower broadband prices to gain market share from rivals including Telefonica, the country’s former phone monopoly, and Vodafone Group Plc (VOD) as some Spanish consumers cut back spending. Spain’s unemployment rate, the highest in the European Union at 21 percent, and government austerity measures are taking its toll on consumer spending throughout the country.

‘Limited Impact’

“The market slowdown has had a very limited impact in Jazztel’s growth, as most of the company’s new customers come from churners from other operators,” the CEO said in an e- mailed statement to Bloomberg later today. “Despite this slowdown in the market, which we consider as temporary, the market’s growth potential remains intact due to its lower penetration compared to other European markets and Jazztel’s current growth continues to be very positive.”

Jazztel, founded in 1998, has reached more than 1 million customers for asymmetric digital subscriber lines, or ADSL, and aims to win more than 50,000 clients during the third quarter, it reiterated today. Jazztel is facing increasing competition from bigger rivals including Telefonica, which cut its ADSL offering to 24.90 euros a month in September from 40.90 euros.

“There have been other offers in the market as competitive or even more before,” Garcia said. “We can still be competitive keeping growth rates. Customers come to us because of our price and service quality.”

First Decline

The number of registered broadband lines in Spain dropped by 580 in July from the previous month, according to the country’s regulator. That’s the first decline since the watchdog, known as CMT, started tracking data in 2004. The decline in broadband lines is “worrisome,” Garcia said today.

“The economic crisis has definitely a negative impact for Jazztel,” Stephane Beyazian, a London-based analyst at Raymond James, said by phone today. “The market is more difficult now and we may see fewer customers” going forward, he said, adding that companies may try to offset the market pressure with promotions.

To contact the reporter on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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