Telefónica Ramps Q1 Profit

Telefónica SA (NYSE: TEF) reported strong top line figures for its first quarter today, announcing a 15 percent leap in revenues to €13.75 billion ($18.7 billion) and a near 8 percent jump in profits to €1.26 billion ($1.7 billion). (See Telefónica Ups Q1 Profit.)

The Spanish giant now has 206 million customers in Europe and Latin America, of which 149 million are mobile subscribers, with its revenues spread around its main operating regions -- 36.6 percent from Spain, 25.6 percent from the rest of its European operations (U.K., Germany, Czech Republic), and 34.1 percent from Latin America.

The carrier also highlighted its broadband growth. It now has 8.5 million DSL customers, with 4 million in Spain, up from 3 million this time last year, another 4 million in Latin America (from 2.9 million a year ago), and 500,000 elsewhere in Europe. Of those Spanish DSL customers, 419,000 have signed up to the carrier's IPTV service, an increase of 169,000 from this time last year, while IPTV numbers in the Czech Republic are creeping up too. (See O2TV Tops 30,000 Subs.)

Telefónica says it is still on course to increase its full year revenues by between 6 percent and 9 percent from last year's €52.9 billion ($71.6 billion). (See Telefónica Reports 2006.)

The first quarter numbers were roughly in line with market expectations, and the carrier's stock remained static on the Madrid exchange today at €16.82.

Telefónica is one of the few European carriers to report positive results for the first three months of this year: Many are suffering as competitive and pricing pressures take their toll. (See Euro Carriers Suffer Profits Dip.)

Telekom Austria AG (NYSE: TKA; Vienna: TKA) is the latest operator to disappoint, with first quarter revenues and net income down compared with a year earlier, while Belgacom joined Telefónica in the small group of European operators reporting profitable growth. (See Telekom Austria Reports Q1 and Belgacom Reports Q1.)

There are concerns, however, that Telefónica might have peaked, and that its numbers might get dragged down in coming quarters by tough trading in some mobile markets. Analysts at Dresdner Kleinwort noted that while the carrier's Spanish mobile division performed better than expected, "elsewhere the story is poor."

In Germany, mobile service revenues fell nearly 5 percent, compared with 3 percent growth in the fourth quarter, while U.K. mobile growth slowed and Latin American fixed line revenues showed little progress compared with a year earlier.

And although the Dresdner team notes that Telefónica is "well managed and diversified," they add that "with rising competition domestically and an economy which is showing signs of wobbling, Spanish strength does not offset our other concerns." In particular, new entrant Yoigo (the brand name for Xfera) and MVNO (mobile virtual network operator) players will likely start to impact the incumbent's mobile business in Spain during the second half of the year. (See TeliaSonera Launches Yoigo and TeliaSonera Goes 3G in Spain.)

— Ray Le Maistre, International News Editor, Light Reading

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