Telefonica Brasil Meets Estimates With Focus on High End

  • Carrier adds 33,000 wireless subscribers even as prepaid drops
  • Broadband internet customers rise, video users decline

Telefonica Brasil SA, the nation’s largest wireless carrier, reported second-quarter profit and revenue in line with analysts’ estimates, continuing its focus on higher-income customers and data sales.

Recurring earnings before interest, tax, depreciation and amortization rose 7 percent to 3.3 billion reais ($1.01 billion), the Sao Paulo-based company said Tuesday in a statement. Revenue climbed 0.8 percent to 10.5 billion reais.

While two years of relentless recession in Latin America’s largest economy have led to double-digit unemployment and a drastic drop in consumer confidence, Telefonica has focused on consumers with higher salaries and fancier phones who are more resilient in an economic crisis. The company added 33,000 wireless subscribers in the quarter even after shedding 337,000 on prepaid plans, which are typically aimed at lower-income customers.

Telefonica’s results contrast with rival Tim Participacoes SA, the Brazilian unit of Telecom Italia SpA, whose second-quarter sales declined 12 percent after the company last year shifted its focus from prepaid to monthly customers. While the results represented a 10th straight decline in quarterly revenue for Tim, the declines are slowing, and the company will probably resume growth by the end of the year as investments in 3G and 4G coverage help attract more clients, Chief Executive Officer Stefano De Angelis said on a call with investors on Tuesday.

Disconnection Bottom

Disconnections of prepaid lines likely bottomed in the second quarter, as expectations for the economy start to turn around, Chief Executive Officer Amos Genish told reporters in Sao Paulo.

The number of prepaid customers “should remain stable or grow from now on,” Genish said. “The second quarter was the first moment in which we could feel positive effects on the economic perceptions that affected Vivo.”

The company cut its capital expenditure guidance for 2016 to 15.6 percent to 20 percent of revenue, from 20 percent previously. It’s aiming for an Ebitda margin of 35 percent to 36 percent by 2018 after cutting more costs related to the integration of Vivo and GVT, Genish said. Recurring Ebitda margin was 31.4 percent in the second quarter.

Margins in Brazil are “the worst in the world,” and the industry needs a positive growth agenda to help change that, Genish said. The bankruptcy filing of rival Oi SA is a problem for the industry as a whole, and not just that company, which is struggling to emerge from more than 65 billion reais in debt.

Genish said he met with Oi CEO Marco Schroeder and is confident the company’s bankruptcy proceedings won’t affect its daily operations.

“He made it clear to me that operations will continue. I don’t see an operational risk for Vivo and not even for Oi.”

Telefonica Brasil shares rose 1.7 percent to 47.59 reais at 2:14 p.m. in Sao Paulo trading. The stock had climbed 31 percent this year through Tuesday’s close.

  • Telefonica had 31.6 million monthly wireless customers at the end of the second quarter, up 6.9 percent from a year earlier.
  • Broadband internet customers rose by 34,000 in the quarter to 7.25 million
  • Video subscribers fell by 25,000 to 1.76 million.
  • Net income fell 23 percent from a year earlier to 700 million reais, with restructuring charges cutting into a profit and financial income falling compared with last year, when there was a capital increase related to the acquisition of GVT.
  • This is the first quarterly report under new Chief Financial Officer David Melcon Sanchez-Friera, who was selected on April 8 after getting his work permit in Brazil.
  • Telefonica SA, the Brazilian unit’s Madrid-based parent company, is scheduled to report earnings on Thursday.

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