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EARNINGS PREVIEW: European Telcos Seen Posting Mixed Results

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TAKING THE PULSE Europe's largest telecommunications companies are expected to announce a mixed set of earnings this quarter, following a year of in country consolidation and expansion into new markets.

After France Telecom upped 2007 targets and reported stronger than expected third-quarter revenue and margin growth on Oct 25., analysts will be looking closely to see whether other major European stocks can perform just as well.

Despite recent market turmoil, the telecommunications sector has become something of a "safe haven" for investors, with solid subscriber numbers making it a utility-like investment, further buoyed by strong guidance from both France Telecom and Telefonica.

However, despite BT, Vodafone and Telefonica expecting to report continuing revenue growth, Telecom Italia is forecast to report lower sales and earnings before interest, tax, depreciation and amortization, as a result of regulatory pressures and poor performance in Brazil. In comparison, Telefonica is likely to see sales growth from its expansion into Latin American markets.

Clarity over Telecom Italia's future after Telefonica took a stake in the company, as well as news on German price wars, is likely to feature heavily during November's earnings season.


---BT Group ---(Nov 8)

MARKET EXPECTATIONS: Analysts are likely to turn the spotlight on BT Group's Global Services unit and broadband sales figures when it announces second quarter results on Nov. 8. Analysts will look for margin improvements in the telecoms operator's Global Services technology division, while expecting broadband figures to be impacted by market liberalization and greater competition from Carphone Warehouse and British Sky Broadcasting. Revenues are expected to rise 2.8% to GBP5.08 billion, according to a company poll of 12 analysts, while underlying pretax profit is forecast flat at GBP700 million.

MAIN FOCUS: The UK's former telecoms monopoly is once again expected to grow revenues in its Global Services networked I.T. division, which now contributes near to 50% of group sales. However, a likely share price catalyst would be positive news on the unit edging closer to its medium term margin targets of 15%.

Citigroup puts interim dividends consensus at 5.4 pence per share up from 5.1p last year. Analysts also expect significant headcount reduction this quarter at BT, as the telco takes a GBP230million charge on its restructuring and creation of two business units BT Design and BT Operate.

---Deutsche Telekom ---(Nov 8)

MARKET EXPECTATIONS: Deutsche Telekom's fortunes are expected to continue much in the same way they have over previous quarters. Analysts expect minimal sales increases, driven by consolidation effects contrasted with a considerable - though still single-digit - Ebitda decline, due to the continuing domestic problems in both the fixed line and wireless markets. T-Mobile USA is again expected to be the growth engine of the whole group. Altogether, performance will be sufficient to maintain the EUR19 billion full-year operating profit target, analysts say.

MAIN FOCUS: Smaller domestic rivals had to revise their guidance in light of tougher competition in the broadband market, so experts will chiefly be looking at broadband net adds in Germany. Another important question is whether DT has managed to stem the huge losses in its traditional fixed line business. Furthermore, analysts are waiting for some news about the search for a partner for its business division, T-Systems, and about the impact of its program to lower personnel costs.

---Telecom Italia ---(Nov 8)

MARKET EXPECTATIONS: Telecom Italia is expected to report lower sales, earnings and Ebitda, chiefly resulting from a poor half-on-half performance in Brazil and increased regulatory impact from the Bersani decree, which eliminated operator fees for mobile phone recharges. The company may also see some revenue shrinkage from roaming and fixed-to-mobile tariff cuts.

Visibility on overall strategy remains poor, despite Telefonica and Italian banks recently closing a deal which sees them taking a key stake in the company. Analysts say a change in top management - expected to be announced alongside the third quarter results - may improve sentiment and lead to some changes in financial strategy, but they see no quick fix to the fundamentals.

MAIN FOCUS: Investors are still looking for evidence that Europe's fifth-largest telecoms group, which has undergone several management shakeups, has a clear business strategy to cope with falling margins in the domestic market. Key issues pending are Italy's regulator decision on access network separation and the government's intention to dedicate some budget and European Union funds to support investments in the country's next-generation network.

---Telefonica ---(Nov 12)

MARKET EXPECTATIONS: Analysts believe revenue growth in the first half of the year will keep up in the third quarter, with the biggest boost coming from high growth Latin American markets and Spanish domestic mobile. Telefonica's German and U.K. O2 mobile arms continue to be weak spots, but not enough to rain on Telefonica's parade. In last month's Investor's Day, Telefonica said revenue compound annual growth rate, or CAGR, would be between 5% to 8% for the period 2006 to 2010.

MAIN FOCUS: The robust numbers are likely to be overshadowed by any fresh information about control and strategy moves in Telecom Italia after its recent purchase of a stake in the company. Telefonica also said this week that it wants to up its stake in Chinese broadband and fixed-line operator China Netcom to 10% by the end of the year.

---Vodafone Group ---(Nov 13)

MARKET EXPECTATIONS: The world's second largest mobile phone operator by subscribers is expected to receive a further boost to numbers this quarter, following its acquisition of Indian telco Hutch Essar earlier this year. The company should also see second quarter underlying growth stabilize in Europe, where it has been dogged by price wars. While Germany could still remain tough, growth is expected in the U.K. and Spain.

MAIN FOCUS: Mobile phone subscriber numbers in India have accelerated from 6 million in May to 8 million over the past three months, with the now renamed Vodafone Essar increasing its market share to 17% from 16%, according to JP Morgan. Analysts will look for further detail on Vodafone's India operations, including its network sharing deal with Bharti Airtel.

While Vodafone is not expected to give guidance for next year until full year results in May, Chief Executive Arun Sarin is expected to try to silence recent criticism by giving a confident future vision and detail on its mobile broadband and "Mobile Plus" strategy.

-By Daniel Thomas, Dow Jones Newswires; 44-20-7842-9264; dan.thomas@dowjones.com

(Jason Sinclair in Madrid, Giada Zampano in Milan, Stefan Mechnig in Duesseldorf and Jethro Mullen in Paris contributed to this article).

(END) Dow Jones Newswires­

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