Móviles Moves Up in Q3

In the same week as Telefónica SA acquired U.K. operator O2 plc (NYSE/London: OOM), the Spanish incumbent's mobile arm beat forecasts Thursday with a 24 percent increase in third-quarter profit. (See Telefónica Móviles Posts Q3.)

Telefónica Móviles SA reported net income of €614.9 million (US$734.3 million) on revenues of €4.29 billion ($5.12 billion), which were up 45.9 percent on the year-ago quarter. Consensus analyst estimates for profits had been closer to €567 million ($677.11 million).

Much of that growth came from its booming operations in Latin America, where it acquired 's (NYSE: BLS) assets last year. (See Telefónica Buys BellSouth Ops.) The number of subscribers there jumped 75.7 percent year-on-year to 65.6 million, compared with 19.6 million at home in Spain.

Chairman Antonio Viana-Baptista told a conference call that, thanks to a new pricing strategy, Móviles in Spain saw "outstanding growth in service revenue" and net customer additions of 251,000 during the quarter, despite the maturing of the market. Spain has one of the highest mobile penetration rates in the world, at 93 percent.

Competition in the market is about to ramp up with 's (NYSE: FTE) acquisition of rival operator Amena, and Móviles is planning an aggressive push on 3G services during the Christmas period: "We're trying to get, as fast as we can, the strongest competitive advantage on 3G," Viana-Baptista said. Its UMTS rollout is focused on providing dense coverage in urban areas, and it so far has 150,000 3G customers.

In Latin America, Móviles is working to build out GSM networks and improve the "quality" of subscribers to prevent churn. Viana-Baptista said the company is "taking a selective approach both by segment and by region" and looking to competitors to help create "healthy sales" through higher barriers to entry -- presumably so that customers signing up are ones that can afford to pay their bills.

The Chairman said he was prevented from commenting on the O2 buy since the deal is in its early stages, but noted that it is parent Telefónica buying the operator and not Móviles itself. It remains to be seen how the O2 operations, in the U.K. and Germany, will be integrated into the group.

Móviles says it's on track to meet its targets for the year, including an increase in revenues of between 33 percent and 36 percent and investments of around €2 billion ($2.39 billion).

— Nicole Willing, Reporter, Light Reading

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