Telefónica Busts Its 2006 Targets

Spanish giant Telefónica SA (NYSE: TEF) is on course to bust its 2006 targets for revenue growth and capital expenditure after a year of greater than expected demand for broadband and mobile services.

The carrier, which has fixed and mobile operations across Europe and Latin America, says its capex for 2006 was nearly €8 billion (US$10.34 billion), 50 percent higher than the €5.3 billion ($6.85 billion) it spent in 2005, and up more than 10 percent from the €7.2 billion ($9.3 billion) it had expected to shell out.

Telefónica says it doesn't expect to spend as much in 2007, but hasn't given a specific target.

The main drivers for the increased outlay were fixed broadband investments in Spain and Latin America, a faster rollout of 3G in Germany by the carrier's European mobile operator, Telefónica Europe plc (O2) , and greater than anticipated investment in GSM infrastructure in Brazil.

But the carrier expects revenues to be higher than previously expected, too. Telefónica had previously expected 2006 revenues to be between 34 percent and 37 percent higher than 2005's €37.9 billion ($49 billion), but now it expects to report growth higher than 37 percent. (See Telefónica Reports 2005.)

Analysts at Lehman Brothers had already forecast revenues growth of 41 percent for 2006. They had expected 2006 capex of €7.7 billion ($9.94 billion).

Telefónica says it had 7.3 million broadband customers at the end of September 2006, up 45 percent from a year earlier. Of those, 3.4 million were in Spain, where the carrier had 304,000 subscribers to its Imagenio IPTV service, and 3.5 million in Latin America, including 1.5 million in Brazil. The carrier is aiming to have between 5.6 million and 6.1 million DSL customers in Spain by 2009.

The bulk of the remaining DSL customers are in the Czech Republic, where it has also launched IPTV services, while it has more than 10,000 in the U.K. (See Cesky Reports on DSL, O2 Touts IPTV Growth, and Telefónica Buys Be.)

Vendors underpinning Telefónica's broadband rollout include Ericsson AB (Nasdaq: ERIC) (DWDM gear), Huawei Technologies Co. Ltd. (DSLAMs), and Alcatel-Lucent (NYSE: ALU) (access, metro Ethernet, IP, OSS, and optical gear). (See Ericsson Wins Telefonica Deal, Lucent Wins at Telefónica, Wind, Telefónica Pick Alcatel, Telefónica Uses Lucent OSS, and Alcatel Wins Deal.)

The carrier's mobile infrastructure vendors include Ericsson, Huawei, and Nokia Corp. (NYSE: NOK).

— Ray Le Maistre, International News Editor, Light Reading

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