Brazil's Telco Results Show Brighter Wireless Outlook
SAO PAULO -(Dow Jones)- Fourth-quarter results reflected an improvement in the outlook for Brazil's wireless operators, while integrated operators showed solid but uninspiring results.
For cellular services companies, higher revenues and margins in the fourth quarter were the fruit of a collective decision to shift attention from subscription growth to attracting and retaining mid- and high-end users, analysts said.
"While the competitive environment remains pretty tough, more rational competition (among the wireless firms) already appears to have had a positive effect," said Luciana Leocadio, analyst at BES Securities.
Over the last few years, Christmas has been a time of big discounts on mobile handsets for pre-paid customers, who tend to come from the lower end of the income scale. But the main operators didn't indulge in heavy undercutting last year and, as a result, December net additions subsided to 3.85 million compared with 4.41 million the year before.
Telecom Italia's Brazilian subsidiary Tim Participacoes remained the top performer, showing the biggest gains in market share, revenues and earnings before interest, depreciation, taxes and amortization, Vera Rossi of Morgan Stanley, said in a report.
The company registered higher-than-expected fourth quarter profits of 145 million Brazilian reals ($65.0 million), up 74% on the year before.
The results for Vivo, Brazil's largest mobile telephone operator, were the main disappointment as the company continued to encounter problems with network fraud issues. Vivo's main unit, Telesp Celular Participacoes, registered a net loss of BRL318 million, wider than the BRL235 million in the same period one year before.
Integrated fixed-line and wireless firms Brasil Telecom and Tele Norte Leste Participacoes, or Telemar, were the most aggressive in the wireless market during the fourth quarter, as they tried to establish larger subscriber bases.
But while diversification is obviously the way forward for fixed-line companies that are seeing their core business erode, their attempts at growth are fragmenting the industry, analysts said.
There are currently four wireless operators in most of the main local markets, which analysts say is too many.
Consolidation is likely in the next 12 to 18 months, according to Morgan Stanley's Rossi.
The big question is what form will consolidation take?
Rumors continue to circulate that Telecom Italia will take over Brasil Telecom, while Telemar remains in the control of institutional investors and could be sold to a competitor in the wireless sector, said Rogerio Tostes, analyst at the local Safra brokerage.
The only long-term players likely to remain in the telecom industry in Latin America are Spain's Telefonica and two companies controlled by Mexican magnate Carlos Slim, America Movil and Telefonos de Mexicanos, or Telmex, said Rossi.
Fixed-line operators relied on their data and mobile service units for revenue growth last quarter.
"They openly admit that their core business will continue to erode. They are banking a lot on wireless and ADSL (broadband service)," said Rogerio Tostes, analyst at the local Safra bank.
Overall, Telemar posted slightly stronger than expected fourth-quarter profits of BRL416 million, while Brasil Telecom Participacoes posted a net loss of BRL119 million after making a loss provision.
"The broadband sector could see the same kind of expansion we saw in the cellphone sector in the next couple of years," Tostes predicted.
"There are currently around four million broadband users, which is extremely low in a country of (nearly) 190 million people," he pointed out.
-By Alastair Stewart, Dow Jones Newswires; 55-11-3145 1479; alastair.stewart@dowjones.com
(END) Dow Jones Newswires
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Posted to the site on 17th March 2006
