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Telefonica Profits Hit by Write-Down of its Stake in Telecom Italia

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Telefonica has reported that its first half revenues rose by 6.3% to EUR 30.89 billion (USD44.7 billion), thanks to a sharp rise at its Latin American division and the significant increase of mobile data revenue.

In the first half, Telefónica's home market of Spain represented just 28% of its revenues, with the rest coming from Latin America and its non-Spanish European markets.

However, net profits dropped by 16.3% to EUR 3.16 billion (USD4.57 billion), affected by the non-cash impact resulting from the revision of the value of its 10.47% indirect stake in Telecom Italia, which reduced net income in the first half-year by EUR 353 million.

In the results report published today, the Chairman of Telefónica, César Alierta, emphasises that "we remain focused on value and over the coming months will continue to leverage our scale, scope and diversification to achieve our full-year guidance." Alierta particularly emphasised the performance in Brazil, which he described as "outstanding", adding that it consolidates the Company's leadership "in a market which will soon become Telefónica's main source of revenue, and where the integration of the fixed and mobile businesses will allow the Company to capture synergies of 3,700-4,600 million euros, a significantly larger amount than initially forecasted."

The company also reported a 6% growth in its total subscriber base, to 295 million at the end of June 2011. By region, Telefónica Latinoamérica and Telefónica Europe, with year-on-year organic growth of 8% and 5% respectively, were the main contributors to the growth in Telefónica's customer base.

Telefónica's mobile customer base totalled 227.3 million by the end of the first half of 2011, up 8% year-on-year in both organic and reported terms, underpinned by the sustained increase in the contract segment (+13% year-on-year in organic terms), which now accounts for 32% of the total mobile access base (+1.4 percentage points year-on-year in organic terms).

Mobile broadband customer base reached 29.8 million at the end of June 2011. This figure represents a penetration rate of 13% of Telefónica's mobile access base. Telefónica Europa reached a penetration rate of 28%, followed by Telefónica España (23%), while there is huge scope to increase penetration at Telefónica Latinoamérica (7% in June 2011).

Retail fixed broadband accesses reached 17.6 million, up 8% year-on-year. Bundles of voice, broadband, and television services remain key to this strategy and especially to churn control. Both in Spain and Latin America, close to 90% of retail fixed broadband accesses are bundled as part of either a dual or triple service package.

Pay TV accesses stood at 3.1 million at the end of the first half (+16% year-on-year), representing a pick-up in the growth rate thanks to the success of the commercial repositioning of the service in Latin America and the inclusion of TVA's customers in Brazil from June.

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