Telefonica Czech Net Declines as Clients Curb Spending

Telefonica Czech Republic AS, the country’s biggest telecommunications company, said third-quarter profit fell 20 percent as clients spent less on calls and competitive pressures eroded prices.

Net income for the three months ended Sept. 30 was 1.76 billion koruna ($89 million) from 2.21 billion koruna a year earlier, the Prague-based company said in a statement today. Revenue fell 4 percent to 12.6 billion koruna.

Revenue from mobile business deteriorated “modestly” as residential clients curbed spending on calls, Chief Financial Officer David Melcon said in the statement. The sales decline from fixed operations decelerated, helped by revenue from data and other services.

Telefonica Czech, a unit of Spain’s largest telecommunications company, has been battling a steady decline in earnings, which peaked in 2005, by streamlining operations and laying off employees. The operator plans to deploy new generation mobile technology and a fiber optic network to boost income from Internet data services and compensate for a decline in traditional voice offering.

Operating income before depreciation and amortization, or Oibda, fell 12 percent to 5 billion koruna in the quarter. The Oibda margin declined to 39.8 percent in the quarter from 43.4 percent a year earlier.

Telefonica hasn’t changed its approach to dividend policy and its intention to distribute cash to shareholders, Melcon said in an analyst call today. The company, which still has “room” for capital reduction, will communicate the proposal with the full-year results, Melcon said.

‘In Line’

Telefonica fell 1.9 koruna, or 0.5 percent, to 388 koruna at close in Prague trading.

The results are “in line” with estimates, although revenue is “slightly” below, Cyrrus AS analyst Jiri Simara wrote in a note to clients. Cyrrus has an “accumulate” recommendation on the stock.

Telefonica said that it opened its network to a virtual operator Bleskmobil, run by publishing house Ringier Axel Springer CZ, as of Nov.7. The company is also competing in an auction for 4G mobile network frequencies run by the Czech telecommunications regulator.

“We’re very interested in acquiring all the spectrum we can,” Chief Executive Officer Louis Antonio Malvido said in the conference call.

Debt Option

The company has a “very strong” balance sheet to take any debt that is necessary to cover the spectrum purchases and clearly this is one of the options being analyzed, Melcon said in the call.

Revenue from Slovakia represented almost 10 percent from total sales in the nine months ended Sept. 30, the company said in the statement.

Telefonica reiterated its full-year guidance for “limited” margin erosion in 2012 and a cap on capital expenditure of 6.2 billion koruna. The company said it set a record day for share capital reduction for Nov. 14.