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Telmex Boosts Spending, Speeds as Client Loss Hurts Profit

July 20 (Bloomberg) -- Telefonos de Mexico SAB, the nation’s largest land-line phone company, raised its forecast for investments this year by 10 percent to boost Internet speeds after second-quarter profit fell 12 percent on customer losses.

Telmex will spend 11 billion pesos ($944 million) on capital expenses this year, up from an earlier forecast of 10 billion, Chief Financial Officer Adolfo Cerezo said today on a conference call. The spending includes a project to extend fiber-optic lines to customers’ homes in some areas.

The phone carrier, controlled by billionaire Carlos Slim’s America Movil SAB, is adding faster download speeds to keep customers from switching to cable carriers run by Grupo Televisa SA that offer packages of phone, Internet and TV service. Phone lines operated by Mexico City-based Telmex fell in the second quarter to 15.3 million, down 308,000 from the previous quarter.

“Growth in data service is not enough to offset the fast decline in traditional wireline services,” said Andre Baggio, an analyst at JPMorgan Chase & Co. in Sao Paulo, in a research note dated yesterday. He has an “underweight” rating on the shares. “It seems unlikely that it will reverse its negative trends.”

Net income fell to 3.15 billion pesos ($270 million), or 17 centavos a share, from 3.57 billion pesos, or 20 centavos, a year earlier, Telmex said late yesterday. Sales fell 2.9 percent to 27.6 billion pesos, matching Baggio’s estimate.

Telmex declined 20 centavos, or 2.1 percent, to 9.21 pesos at 4:10 p.m. New York time in Mexico City trading, the biggest decline in a month. The shares have lost 8 percent this year.

Boosting Speeds

Telmex is planning to extend its fiber-optic cables to 1 million homes this year, offering speeds of as much as 50 megabits a second, compared with the 5-megabit top speed it offers commercially in most of the country, a person with direct knowledge of the plan said in May.

Cerezo said the fiber plan will include homes “in areas where it makes sense” in terms of network conditions and demand. The company will provide further details after the current quarter concludes, he said.

In some areas, Telmex is extending fiber near homes instead of all the way to them, which still increases speeds, he said.

To battle Televisa’s packages of multiple services, Telmex is fighting in court to overturn the Mexican government’s decision to deny it a license to offer television service over its phone lines. Meantime, it’s selling a package of services with satellite-TV provider Dish Mexico to keep clients from switching to Televisa’s cable units.

Subscriber Losses

Telmex is in discussions with government officials on the requirements for it to get the TV license, Financial Planning Director Carlos Robles said today on the conference call.

The phone carrier’s customer losses last quarter included 113,000 disconnected lines that were no longer being used because they had been dedicated to technical support for dial-up Internet services. High-speed Internet subscriptions increased by 112,000 to 7.57 million.

The three cable carriers controlled by Mexico City-based Televisa added a total of 42,000 phone lines and 46,000 Internet subscriptions last quarter.

(The company held a conference call at 10 a.m. New York time. To listen, click here.)

To contact the reporter on this story: Crayton Harrison in Mexico City at tharrison5@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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