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UPDATE 2-Telefonica Brasil profit slips as expenses rise
July 25, 2012 / 1:21 PM / 5 years ago

UPDATE 2-Telefonica Brasil profit slips as expenses rise

* Profit down 5.6 pct, misses estimates

* Plans to launch pay-TV service October

* Slower mobile adds cut revenue growth

* EBITDA rises 1 pct, beating estimates (Adds details and quotes from conference call)

SAO PAULO, July 25 (Reuters) - Telefónica Brasil expects the costs of integrating its mobile phone unit Vivo to phase out in coming quarters, as rising operational expenses hampered second-quarter profit at Brazil’s No. 1 wireless carrier.

Expenses relating to the integration and branding of Vivo are mostly past, while some general and administrative expenses may rise below-trend through year-end, executives said on a conference call to discuss second-quarter earnings.

“We are done with the biggest parts of the integration costs, we are still working very strongly on efficiency projects and synergy projects between fixed and mobile,” Cristiane Barretto Sales, the company’s controller, said on the call. “We expect to be finished in 2013.”

The local unit of Spain’s Telefónica said profit dropped 5.6 percent in the quarter from the same period last year as higher expenses, a tumbling currency, and subscriber delinquencies hampered growth.

The company said in a securities filing on Wednesday that net income was 1.086 billion reais ($533 million). That was below the average estimate of 1.127 million reais in a Reuters poll of four analysts.

The results underscore the challenges facing Telefónica Brasil, which faces tougher competition in an increasingly saturated mobile market and a drop in the use of fixed lines -- one key source of revenue for the firm. Revenue per user slipped 7 percent on an annual basis, signaling that customers are opting for cheaper pay-as-you-go plans.

Brazil’s economic slowdown, now about a year old, also weighed on Telefónica Brasil’s ability to rein in expenses. Delinquencies rose sharply on an annual basis, forcing the company to raise provisions for bad customer debts by 21 percent in the quarter.

Brazil’s mobile phone market has more than doubled in five years to 255 million connections thanks to a robust job market and rising wages, but growth has shown signs of slowing in a country of about 190 million. In the latest quarter, Telefonica Brasil added wireless users at a rate 52.9 percent slower than a year earlier.

Brazil’s telecoms also face added pressure from regulators to improve service with more capital spending, after rising consumer complaints about dropped calls and spotty coverage.

Telefonica Brasil was the only major mobile carrier whose sales have not been suspended in any of Brazil’s states by regulator Anatel, but officials are demanding to see the company’s plan to invest in improved service quality.

Telefonica Brasil’s spending fell 38.2 percent in the quarter to 1.144 billion reais. Excluding year-ago spending of 811.8 million reais to acquire operating licenses, spending rose 10.2 percent as the company upgraded its network to keep up with a growing client base and new wireless technologies.

Competition for customers has grown stiffer as rival Grupo Oi ramps up spending to regain mobile market share. Telefonica Brasil has responded with increased spending to support sales, eroding profitability.

Telefonica Brasil said it will launch a new pay-television service later in the year, in a move that may erode some of the more than 50 percent market share of Mexican tycoon Carlos Slim’s local units of America Movil. Testing is to take place in September ahead of an October launch, executives said on the call.

The company said its taxes in the quarter rose 7 percent, weighing on profitability, while expenses related to currency variations rose 28 percent. Brazil’s currency fell 11 percent against the U.S. dollar in the second quarter.

Earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA, rose 1 percent from a year ago to 3.093 billion reais, beating forecasts of 2.827 billion reais. Net revenue fell 0.2 percent.

At 16:29 GMT, shares of Telefonica Brasil traded on Sao Paulo’s stock market were down 2.36 percent at 45.11 reais.

$1 = 2.038 Brazilian reais Reporting by Alberto Alerigi Jr. and Asher Levine; Editing by Maureen Bavdek, Guillermo Parra-Bernal, John Wallace and Bernard Orr

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