Belgacom Core Earns Down 5% As Competition Bites

BRUSSELS -(Dow Jones)- Belgian telecommunications incumbent Belgacom, Friday posted a 5.2% fall in core earnings for the first quarter of 2006 as fixed-line revenues continue to fall and competition in the mobile sector intensifies.

Normalized earnings before interest, tax, depreciation and amortization came in at EUR545 million, down from EUR575 million in the same quarter last year, slightly below analysts estimates of EUR546 million.

The normalized figure excludes a one-off gain of EUR238 million in the first quarter of 2005 that skews the reported EBITDA and net profit results.

Sales were EUR1.51 billion, down 4.4% from EUR1.58 billion a year ago. The figure was boosted by EUR179 million from telecommunications IT company Telindus, which Belgacom acquired earlier this year.

The company's profits are being squeezed by falling fixed-line revenues as customers switch to mobile phones, and increasing competition in its mobile operations from Belgian rivals Mobistar, a unit of France Telecom and BASE, a unit of Royal Dutch KPN. Mobile prices are coming down as a result, hitting margins.

In a search for alternative growth, Belgacom is also rolling out digital TV services, which is expected to add costs of between EUR30 million and EUR40 million this year. At 1503 GMT, the company's shares were trading down EUR0.42, or down 1.6%, at EUR25.16 in a slightly higher market.

Belgacom's fixed-line unit had normalized EBITDA of EUR277 million, down 7.5% from EUR300 million last time. The company said that revenue growth from Internet and Telindus' network integration services couldn't fully offset the decline in traditional voice services.

Belgacom TV, a new business consuming resources, contributed an EBITDA loss of EUR11 million, it said.

The unit faces strong competition from cable operator Telenet on Internet and TV services.

Its mobile unit, Proximus, had sales of EUR527 million, down 0.6% from EUR530 million in the same quarter last year, Belgacom said.

Margins fell to 50% from 51.2%, while average revenue per user or ARPU was EUR39.8, up from EUR39.6 a year ago. Mobile penetration rate in Belgium was 84% in 2005.

The company said it had 4.36 billion active customers at the end of March, up 65,000 from the year before.

Analysts, who had been expecting declines, described the results as reassuring.

"There are two positive surprises," said Dirk Saelens, who covers Belgacom for KBC Securities with an accumulate rating.

"The top-line revenue from Telindus is higher than expected and the EBITDA margin in the mobile unit, though down, is also higher than the consensus," he said.

He said the results should provide support for Belgacom shares Friday.

On a conference call with analysts, Chief Financial Officer Ray Stewart said there was no indication that the Belgian government intends to sell its 50% plus one share stake in Belgacom.

"The government hasn't indicated to me that it would like to sell its shares," Stewart said.

He reiterated that the company still wants to buy out Vodafone Group's 25% in Proximus, if it is offered at a reasonable price.

With fixed-line, mobile, Internet and TV all converging into one, it is important for Belgacom to have 100% control over the mobile unit when bringing out new convergence products, he said.

Net profit for the group was EUR215 million, down from EUR494 million in the first quarter of 2005, mainly due to the one-off capital gain that boosted last year's result.

The company said it had more than 50,000 digital TV subscribers at the end of April, up from 42,000 at the end of March. It's aiming to reach 100,000 clients by the end of the year. Cable operator Telenet is aiming for 300,000 digital clients.

Belgacom warned in February that competition in Belgium would hit revenues and margins this year. It reiterated its forecasts for a 3% decline in fixed-line sales for 2006, and wants to stabilize the EBITDA margin at around 39%.

Belgacom TV will swallow up between EUR30 million and EUR40 million of core earnings for the full year, it said.

In mobile, the company warned that increased competition and the possibility of compulsory price cuts on interconnection rates will further pressure revenues and margins.

It is forecasting a revenue decline of between 3% and 5%.

Company Web site: http://www.belgacom.com

-By Carolyn Henson, Dow Jones Newswires; +32 2 741 1484; carolyn.henson@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 19th May 2006