Telefonica Czech Net Falls on Overhaul Costs, Lower Spending

Telefonica Czech Republic AS, the country’s largest phone company, said first-quarter profit fell because of one-time costs linked to a business overhaul and a drop in spending on phone calls.

Net income declined to 1.05 billion koruna ($53 million) from 1.62 billion koruna a year earlier, the Prague-based company said in a statement. Revenue declined 4.4 percent to 11.9 billion koruna.

Telefonica Czech and its rivals in the country slashed charges and offered bundles of unlimited calls and some data last month after the Czech regulator proposed new terms for a radio-spectrum auction. The Czech Telecommunication Office unexpectedly canceled the previous sale of frequencies over concerns that excessive bids of over 20 billion koruna would result in higher prices for customers and slower investment.

“The results were roughly in line,” Erste Group Bank AG analyst Vera Sutedja wrote in a note to clients. “We would put more focus on results from the second quarter onwards after the launch of new cheaper tariffs. We remain cautious on Telefonica due to the possible impact of the price war, the high costs of the spectrum and the possible entry of a fourth player.”

Sutedja recommends investors to “reduce” the stock.

Guided oibda, or operating income before depreciation and amortization, fell 14 percent to 4.35 billion koruna, it said. The results were impacted by a gain of 220 million koruna from the sale of non-core assets a year earlier and by higher restructuring costs of 354 million koruna booked in the past quarter, Telefonica said.

Spectrum Auction

Czech Telecommunication Office prolonged a public discussion for a new mobile-spectrum auction until May 22 on requests from prospective participating companies. In proposed terms, the office set aside two blocks of 10 MHz in the 800 MHz band for a new operator and increased the size of the new operator’s block in the 1800 MHz band to two blocks of 15.8 MHz from two blocks of 15.6 MHz.

Telefonica, which considers the rules discriminatory, has been giving its feedback to the government as well as political authorities in Europe, Chief Executive Officer Louis Antonio Malvido said in a conference call with analysts.

Mobile operating revenue in the Czech Republic fell 6.9 percent to 5.68 billion koruna from a year earlier, mainly on mobile termination rate cuts and competitive pressure, it said. Fixed operating revenue declined 5.4 percent to 5 billion koruna from a year ago, it said.

Telefonica reiterated its full-year guidance for a “limited” erosion in margins and capital expenditure of less than 6 billion koruna, excluding business acquisitions and potential costs of spectrum license.

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