Brazilian fixed-line carrier Telecomunicacoes de Sao Paulo SA (TSP), commonly known as Telesp, reported first quarter 2010 earnings per ADS of 44 cents falling short of the Zacks Consensus Estimates of 55 cents. Net income dipped 16.6% year over year to R$403 million (US$225 million), hit by the declining local voice revenues.
The Brazilian subsidiary of Spanish telecom giant Telefonica (TEF) reported net operating revenues of R$3.89 billion (US$2.2 billion), down 1.7% year over year, due to the erosion in legacy voice telephony business as a result of lower access lines.
Local voice revenues dipped 6.8% year over year to R$2.49 billion (US$1.4 billion) while domestic and international long-distance revenues declined 2.5% and 22.6%, respectively, impacted by lower traffic. Data transmission (broadband Internet) and Pay-TV revenues rose 2.5% and 5.6%, respectively. Internet revenues were boosted by the increased uptake of the “Speedy” broadband service.
Consolidated EBITDA for the quarter declined 13.9% year over year to R$1.27 billion (US$711 million) with the EBITDA margin equating to 32.8%, down from 37.4% a year-ago. This decline is attributable to fixed-line revenue erosion and higher operating expenses.
Total operating cost increased 5.5% year over year to R$2.62 billion (US$1.5 billion) as the company spent more on customer service and network maintenance to improve service quality.
Telesp registered 163,000 net additions for its broadband service, bringing the total subscriber base to roughly 2.8 million (up 5.4% year over year). Pay TV subscriber base declined 6.6% year over year to 469,000 customers. Total fixed access lines in service reached 11.2 million, down 3.3% year over year.
Telesp exited the quarter with cash and cash equivalents of R$2.8 billion (US$1.5 billion) and total debt of R$3.6 billion (US$2 billion). The carrier generated R$1 billion (US$566 million) of cash from operating activities and spent R$357 million (US$200 million) in capital expenditure.
Telesp has been investing in new businesses, especially broadband Internet, given the limited opportunity in its highly matured local and long-distance phone operations. The company is bundling broadband and video with its legacy wireline voice service in an effort to contain customer churn.
However, Telesp remains significantly challenged by a declining subscriber base for its legacy voice telephony operation as it is facing stiff competition from wireless, VoIP (Internet phone) and cable services. The company’s exposure to an increasingly competitive environment is expected to continue to limit operating results.
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