Telefonica income drops 50%; news not all bad

Spanish carrier Telefonica gave further indication of the state of the European telecoms market on Friday, reporting revenue for the third quarter that climbed 5.7 per cent year on year to Eur14.99bn while net income dropped 50 per cent year on year to Eur2bn.

But the previous year’s income was boosted by the sale of media firm Endemol and Telefonica’s results showed organic growth.

Fixed line subscribers jumped 15 per cent year on year to 247.7 million at the end of September, while mobile users increased 19 per cent to 188.9 million worldwide.

The company’s domestic results show the more defensive profile of its business, with Spanish revenues increasing 1.6 per cent to Eur15.7bn in the nine month period to the end of September. The Latin American operations posted decent growth with revenues over the same period climbing 11.1 per cent to Eur16.3bn. The European operations almost bowed to pressure with revenue almost flat at Eur10.7bn.

Michael Kovacocy, European telecoms analyst and sector strategist at the Daiwa Institute of Research, said at first glance, Telefonica’s results, “Highlight what our position has been throughout the recent turbulence in world financial markets – Euro telecom players offer a defensive play and have been unfairly sold off.”

The analyst notes that Spain did not collapse as many had feared, “And would point to the significant growth in fixed revenue as potentially supportive of our theory that pricing power could be returning to European fixed at the most ironic of times – partly as a result of difficulties which alternative network providers may encounter as the macro-economic picture softens.”