Telefonica Said to Offer Handset Purchase Options to Keep Users

Telefonica SA (TEF) plans to offer additional financing options to mobile-phones customers in Spain to prevent them from switching to cheaper rivals, according to an internal note obtained by Bloomberg News.

Starting tomorrow, Spain’s biggest phone company will offer existing subscribers options to purchase handsets via interest- free installments, according to the memo. Customers may also trade in used phones and receive a discount of as much as 245 euros ($327) on a new device, according to the note. Madrid- based Telefonica declined to comment.

As rising unemployment and a slowing economy in Spain spur customers to cancel phone subscriptions or switch to cheaper offers, Telefonica last week predicted profitability to decline further this year. The mobile-phone industry is set to suffer from the price war as operators poach each other’s clients, Santiago Fernandez Valbuena, chief executive officer of Telefonica’s operations in Latin America, said at the World Mobile Congress in Barcelona this week.

“It just doesn’t make much sense to continue to nurture this huge rotation and churn rates,” he said.

Telefonica plans to refurbish some of the used phones it collects and resell them in Spain, Latin America, Asia and Africa, according to the internal memo. In Spain, Telefonica’s rivals include local units of Vodafone Group Plc (VOD), France Telecom SA (FTE) and TeliaSonera AB. (TLSN)

Spain, with a 23 percent unemployment rate, will relapse into a recession this year and additional austerity measures may worsen the slump, the European Commission said this month.

To raise cash and stem investors’ concern about its increasing debt, Telefonica is also selling non-core assets, slashing is Spanish workforce and halting major mergers and acquisitions. Telefonica on Dec. 15 reduced its 2012 dividend forecast by 14 percent, abandoning a policy set up two years earlier, and said market conditions had changed “significantly.”

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

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

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