Brazilian mobile phone company TIM Participacoes SA (TIMP3.BR) is now producing the results from its three-year turnaround, and expects to maintain strong growth ahead given huge market potential, according to the company's top executive.
Having ground to a halt in 2009, with zero revenue growth, TIM is now posting double-digit expansion. For 2011, TIM reported a net profit of BRL1.3 billion, up 66% from 2010, while net revenues were up 18% at BRL17.1 billion.
The reversal of TIM's fortune is down to a change of strategy back in 2009, following a management shake-up at the Italian parent company, Telecom Italia SpA (TIT.MI), which had its own financial worries.
In Brazil, the focus became simplicity, offering flat rates for calls, rather than charging per minute--a move which shook up the Brazilian marketplace, cutting through the confusing array of promotions and plans which had been the norm. Widely questioned at the time, it's now paying off, and the company is well-placed to tap the huge pent-up demand for voice and data services which still exists in Brazil, TIM chief executive Luca Luciani said in an interview.
"Brazilian gross domestic product per capita is one-quarter of what it is in the U.S. What companies have to do is to adapt what we're offering to the reality of the country, to make the business explode," Luciani said.
TIM has recouped its second place standing in the Brazilian mobile phone market, with 64 million subscribers, overtaking Claro, of Mexico's America Movil SA (AMX), in mid-2011. It still lags Vivo SA (VIVT4.BR, VIV), which ended the year with nearly 72 million customers. TIM's customers are now talking much more; the company handled 90 billion minutes in 2011, up from 40 billion minutes in 2009, Luciani said.
According to Luciani, TIM stands to benefit from the huge changes which lie ahead because it doesn't have the traditional fixed-line business. There is going to be a "brutal" transformation, according to the executive; by 2016, mobile will account for 60% of the market, and 40% will be fixed-line, a straight switch from the current situation. TIM's main rivals with fixed-line operations will struggle to sacrifice fixed-line revenues for mobile growth, Luciani said.
For mobile operators, voice services remain an important part of revenues, offering steady, single-digit growth from a large base. Data, on the other hand, offers strong growth; the proportion of TIM's customers with data-enabled handsets jumped to 27% at the end of December, from 10% at the end of 2010.
"What's been true in the U.S. and Europe for three years, has only been here for a few months," Luciani said.
TIM has made two significant acquisitions in recent years that both help reduce costs and give the company heft. It bought long-distance carrier Intelig in 2009, providing a national backbone network, and last year it bought AES Atimus, which operates some 5,500 kilometers of fiber optic cable in the major cities of Sao Paulo and Rio de Janeiro. TIM said it has identified BRL4.8 billion in cost savings from the purchase of AES Atimus--since renamed TIM Fiber--and these should start to show up in the second quarter of this year, Luciani said.
"We bought that fiber to feed the mobile antennas, but at the same time it offers almost for free, things that are interesting," Luciani said.
One major development for 2012 stemming from the purchase of TIM Fiber is the plan to set up 10,000 WiFi hotspots across the country, to allow mobile customers to access the Internet at much higher speeds, but at a far lower cost than installing traditional mobile network antennas.
Meanwhile, Luciani said another big move that will happen at some point will be the launch of an unlimited international roaming service, both for voice and data, Luciani said. The executive didn't indicate when that was likely to happen.
One of the big issues facing the market as a whole this year is the governments' plan to auction so-called 4G licenses, the next technological leap forward which has already been rolled out in more developed markets. TIM has questioned the need to move quickly to 4G in Brazil, and Luciani said that it's still "too early to say" what will happen. He pointed out that existing 3G technology is still out of the reach of most Brazilians, and will only take off once handsets cost less than BRL300, versus the current range of BRL1,000 to BRL2,000.
TIM streamlined its shareholding structure in 2011, and can handle major planned investments from cash flow, Luciani said. The company invested BRL3 billion in 2011, plus BRL1.6 billion to buy AES Atimus. Some analysts have suggested that the company could borrow more, but Luciani said that given the volatility in global financial markets, he prefers a "conservative" approach, and that the emphasis now is on organic growth, without more acquisitions. The company is proposing to increase its dividend payments, to BRL533 million this year from BRL204 million in 2009.
"We are not a dividend yield story, we are a growth story; but it's once again aligning the interests of shareholders," Luciani said. "Given that the perspective for the business is positive, because we can grow, our dividend will grow proportionally."
Investors took their money out of Brazilian equities in 2011, amid the global financial turmoil, Luciani said; the Ibovespa index of stocks on the Sao Paulo exchange declined 18% last year. Companies considered as "defensive" -- those less likely to be affected by a downturn -- did very well, with TIM and rival Vivo among the best performers last year. Luciani said that as global sentiment improves, Brazil stands to benefit, and companies with transparent shareholder structures will benefit most.
"I believe liquidity will return. There will be another cycle of expansion of investments in Brazil, and I believe that to be ready with a simplified capital structure that can attract the liquidity in the world is an important advantage," Luciani said.
-By Matthew Cowley, Dow Jones Newswires; +55 11 3544 7082; firstname.lastname@example.org