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Jazztel CEO Sees Profit Growth Beyond 2012 Amid Spanish Woes

Jazztel Plc, the Spanish phone company that’s winning market share from Telefonica SA, forecast demand for its cheap broadband deals will propel profit growth beyond 2012 amid Spain’s worst economic slump in six decades.

While the company has only given forecasts through 2012, Jazztel’s earnings trend will continue at a similar pace after that year, Chief Executive Officer Jose Miguel Garcia said in an interview in his office in Madrid. Earnings before interest, taxes, depreciation and amortization may climb 38 percent this year to as much as 130 million euros ($185 million) and to as much as 165 million euros in 2012, the CEO confirmed.

Jazztel is luring clients with lower broadband prices to gain market share from rivals including Telefonica, the country’s former phone monopoly, as some Spanish consumers cut back spending. Spain’s unemployment rate is Europe’s highest with 21 percent, and the Cabinet last week approved a reduction in central-government spending next year.

“Jazztel is gaining most of its customers from pretty much every other operator in Spain,” Stephane Beyazian, a Paris-based analyst at Raymond James, said by phone. “The company offers competitive prices and also high-quality service, which has improved dramatically since the last three or four years.”

The shares climbed 3.1 percent to close at 4.23 euros for its steepest gain in two weeks. The benchmark IBEX 35 Index advanced 0.7 percent. The stock has increased 19 percent this year, giving Jazztel a market value of 1 billion euros.

Boosting Market Share

“We are still confident that the group will be able to reach at least the top end of its targeted 2011 Ebitda,” Beyazian wrote in a note to investors today.

Jazztel, founded in 1998, forecasts sales will rise from 615 million euros last year to as much as 750 million in 2011 and to as much as 890 million euros in 2012. The company plans to boost its market share to about 11 percent at the end of next year, bringing its customer base to as many as 1.25 million users, compared with more than 930,000 users at the end of the first quarter.

“We are optimistic for the rest of the year,” Garcia said in the interview yesterday.

Jazztel, which also offers mobile-phone services via the Spanish network of France Telecom SA, will participate in the Spanish spectrum auction that starts this week, the CEO said.

Spectrum Sale

Owning spectrum could help to lower costs and increase profitability as it would reduce payments to France Telecom’s Orange unit. Jazztel could also be classified as a network operator, allowing the company to reach roaming agreements with rivals.

Spain’s government said in April that it will sell as many as 26 blocks of radio spectrum to provide more data capacity to mobile-phone operators in transactions that may raise as much as 2 billion euros.

Frequencies on offer will be distributed among the 800-MHz, 900-MHz, 1.8-gigahertz and 2.6 GHz bands. The bandwidth is becoming available from now through 2015 as the regulator reallocates portions of the spectrum from other uses.

While Jazztel will take part in the auction, it might be “difficult” to win any of the spectrum packages, Garcia said. “You won’t see anything crazy from Jazztel about it.”

Jazztel, which refinanced its debt in 2009, had 53.2 million euros in cash at the end of March. It has about 80 million euros in bonds that are due in April 2013.

“The company is boosting its Ebitda and generating cash, which helps it repay its bond and may be able to start new investments from next year,” said Inigo Isardo, an analyst at Link Securities based in Madrid.

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