Brazil Telco 4Q Earnings Offer Glimpse Of Slowdown Impact
09 Février 2009 - 10:26PM
Dow Jones News
When Brazilian telephone operators start posting their
fourth-quarter earnings this week, they will likely show both solid
results and the first signs of the impact of slowing economic
growth.
While early data, such as net wireless subscriber additions and
handset sales, indicate the market remained robust last quarter,
investors will be looking at average revenue per user, or ARPU, and
provisions for bad debt for signs of longer-term weakness among the
companies.
"The overall impression is that the telecom operators didn't
feel the slowing of the economy last quarter, but we will get a
good idea of whom to keep an eye on for the first half of 2009,"
said Luciana Leocadio, telecom analyst at the Ativa brokerage in
Rio de Janeiro.
While fixed-line revenues probably continued to decline
gradually last quarter, that was more than made up for by the
growth in the mobile subscriber base, which rose by 9.8 million new
clients to 150.6 million in the period.
Meanwhile, the broadband Internet market continued to grow as
long-repressed demand from lower income brackets was being met.
However, a warning for future expansion can be seen in the decline
in personal computer sales.
Brasil Telecom Participacoes (BRP) opens the earnings season
after the markets close Tuesday. The integrated fixed-line, mobile
and Internet provider is expected to register net profits of
between 189 million Brazilian reals ($84 million) and BRL229
million, according to three analysts surveyed.
The company posted disappointing mobile growth figures in the
quarter. But since the takeover by Tele Norte Leste Participacoes
(TNE), or Oi, was approved last year, the company's performance has
ceased to be the main driver for the stock.
Oi, Brazil's largest telecom, will release its earnings only on
Mar. 5.
The integrated operator incurred heavy promotional and marketing
costs with its debut on the Sao Paulo state wireless market in
September. Meanwhile, official statistics indicate that it canceled
a large number of subscriptions in December, presumably as part of
a clearing of dead lines, which will lead to some bad debt write
offs.
"But while the cancellations may cause write-offs, it will
probably help margins," said Jacqueline Lison, a telco analyst at
Sao Paulo's Banco Fator.
Meanwhile, Oi will certainly also have extraordinary costs
related to the acquisition of Brasil Telecom, which will hurt the
bottom line.
The company is expected to post net earnings of between BRL42
million and BRL79.5 million, according to the Dow Jones survey.
"We will be watching for the effect of the (Sao Paulo)
promotions on (Oi's) wireless ARPU and on its consolidated Ebitda
margin," said Vera Rossi, telecom analyst at Morgan Stanley, in a
report.
Brazil's wireless market leader, Vivo Participacoes (VIV), has
combined a growing customer base with superior margins in recent
quarters.
That subscriber base continued to grow in the lastt quarter - up
9% in the period - but a question remains: will margins be
pressured by heavy Christmas promotions?
Results are more unpredictable at TIM Participacoes (TSU), which
went on a desperate drive to meet targets after a disappointing
first two quarters of the year.
The local unit of Telecom Italia SpA (TI) saw margins sag early
in 2008 due to a poor-quality subscriber base that led to bad debt
provisions and falling ARPUs.
The company recovered somewhat in the third quarter and a much
more conservative marketing and sales strategy in the fourth
quarter, reflected in much lower net additions, may mean TIM sneaks
in over its Ebitda margin target of 22% to 22.5% for the year, said
Fator's Lison.
To hit that target, TIM will need an impressive jump in Ebitda
margin to 26.8% for the fourth quarter.
Telecomunicacoes de Sao Paulo (TSP), the No. 2 fixed-line
operator, controlled by Telefonica, will release earnings after the
market close on Feb. 17. The gradual decline in fixed-line revenues
is expected to be more than compensated for by the expansion of
broadband Internet services.
The impact of currency depreciation will also be a factor,
principally on U.S. dollar denominated debt. The Brazilian real
depreciated almost 30% against the dollar in the last quarter.
-By Alastair Stewart, Dow Jones Newswires; 5511 2847-4520;
alastair.stewart@dowjones.com