Telefonica Czech Unit Says Quarterly Profit Falls 13%

Telefonica Czech Republic AS, the country’s largest phone company, said fourth-quarter operating income before depreciation and amortization fell 13 percent as clients spent less on calls and competition eroded prices.

Oibda for the three months ended Dec. 30 dropped to 5.09 billion koruna ($260 million) to 5.84 billion koruna a year earlier, the Prague-based company said in a statement today. Revenue declined 5 percent to 12.8 billion koruna.

Telefonica Czech, a unit of Spain’s largest phone company, has been battling a steady decline in earnings, which peaked in 2005. The company said last month it plans to reduce its workforce by 10 percent in 2013. The earnings have also been hurt by the mobile termination rate cuts, or MTR, ordered by the Czech telecommunications regulator.

“I’m pleased that in the last quarter we accelerated subscribers’ growth in all key areas, despite competitive pressures,” Chief Financial Officer David Melcon said in the statement. “Our mobile revenue performance in the quarter was diluted by additional MTR cuts, while fixed revenue reported a further decline deceleration on the back of higher ICT services.”

Telefonica shares rose 1.3 percent to 320 koruna in Prague trading, valuing the company at 103.1 billion koruna.

Telefonica forecasts “limited” Oibda margin erosion in 2013, compared with 41.4 percent a year earlier. Capital expenditure should be less than 6 billion koruna this year, down from 6.2 billion koruna in 2012, Telefonica said.

4G Auction

The company is facing uncertainties regarding the price of the 4G mobile network frequencies auction, which started in November last year, and a possibility of a fourth player entering the Czech market, which would add to the price erosion.

The company opened its network for the virtual operator Bleskmobil, run by publisher Ringier Axel Springer CZ in November.

The outcome of the running frequency auction may result in “significant” changes in the Czech mobile market, Telefonica said in the statement. Telefonica is “confident” it will be able to maintain a market leading position and is ready to deploy the 4G network this year, it said.

The Telefonica Czech board will propose a dividend of 30 koruna a share, of which 10 koruna comes from a share premium reduction, it said. The board also adopted a resolution to start additional tranche of the share buyback program of as much as 2 percent of stock, it said.

The outcome and the finish of the frequency auction remains “uncertain,” Chief Executive Officer Louis Antonio Malvido said during a conference call with analysts today. The cost of the spectrum wouldn’t affect the dividend as Telefonica would use leverage to finance the purchase, CFO Melcon said at the conference call.

Net income for the fourth quarter dropped to 1.76 billion koruna from 2.87 billion koruna a year earlier, mainly because of a “deferred non-cash tax income” that was booked a year earlier at the company’s Slovak unit, it said.

Before it's here, it's on the Bloomberg Terminal.