Telefonica Suffers Domestically - Analyst Blog
April 05 2011 - 11:53AM
Zacks
Spanish telecom giant Telefonica (TEF) is
seeing a continuous decline in its domestic market share as
customers are switching to cheaper offers from its competitors.
This will lead to lower revenues and earnings for the company.
Spanish operations were weak again in February following
lackluster performances in January and the fourth quarter of 2010.
In the fourth quarter, the company’s earnings missed the Zacks
Consensus Estimate as well as the year-ago earnings due to the
economic crisis in Spain that affected its domestic wireless
business.
Telefonica leads the Spanish mobile market, which includes both
mobile phones and datacards. The company is persistently losing
share in the mobile market, with 41.46% in February 2011 as
compared with 41.58% in January 2011 and 42.27% in December
2010.
In February, Telefonica lost its market share to its rivals ––
Yoigo, a unit of Sweden’s Teliasonera AB and France Telecom
SA’s (FTE). The companies added 45,732 and 11,146
subscribers, respectively, in the month. Telefonica was the biggest
loser in the month shedding 42,623 customers.
We believe Spain is not working in favor of Telefonica. The
economic downturn in Spain has been more than expected and is
likely to drag the company’s profits and liquidity. Margins are
expected to remain strained for the company’s domestic business,
with EBITDA predicted to fall until 2014.
Further, the company’s Spanish revenue continues to be affected
by the ongoing reduction in mobile termination rates, which is the
fee that operators charge each other to connect calls.
However, weak Spanish operations are expected to be fully offset
by strong growth in Latin America and Europe. Latin Americais one
of the best performing regions and remains the principal growth
region for Telefonica. This segment continues to post healthy
subscriber additions on a quarterly basis. Telefonica is
particularly well positioned in Brazil and Mexico, and is actively
gaining market share from its dominant competitor, America
Movil (AMX).
Moreover, the consolidation of Vivo
Participacoes (VIV) in October 2010 enables Telefonica to
offer full competitive bundled services. Telefonica has
merged Vivo with its Brazilian fixed-line voice and broadband unit
Telesp (TSP).
We are currently recommending our long-term Outperform rating on
Telefonica supported by the Zacks #1 (Strong Buy) Rank.
AMER MOVIL-ADR (AMX): Free Stock Analysis Report
FRANCE TELE-ADR (FTE): Free Stock Analysis Report
TELEFONICA S.A. (TEF): Free Stock Analysis Report
TELESP PART ADR (TSP): Free Stock Analysis Report
VIVO PARTICIPAC (VIV): Free Stock Analysis Report
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