Telefónica Revenues up 3.5% in 2011 on Latin American Growth

Spanish incumbent operator Telefónica has reported its fourth quarter and full year results for 2011 with revenues for the year growing 3.5% year-on-year (y/y) to EUR62.8 billion (USD84.1 billion). Of particular note was the gain of 11% y/y in the fourth quarter in Peru. Operating income before depreciation and amortisation (OIBDA) fell 21.6% y/y to EUR20.2 billion. OIBDA margin decreased by 10.3 percentage points to 32.2%.

Operationally, Telefónica reported a mixed picture: total broadband subscriptions grew 5.5% y/y, fixed-lines in service fell 3.0% y/y, mobile subscriptions grew 8.4% y/y, and Pay-TV subscriptions climbed 18.7% y/y.

Outlook and Implications

• LTE to Assist Mobile Data Growth in Spain: Telefónica's performance in Spain was dulled by the increasing competition within the fixed-line and mobile markets. In the mobile market the mobile virtual network operators (MVNOs) alongside Yoigo have been effective at carving up the low-end of the market digging into subscriber growth and revenues. While in the fixed-line market Jazztel's competitive pricing started to pull away broadband customers, with the operator recording a 2.0% year-on-year loss. Telefónica will be looking for growth in 2012 through increased uptake of mobile data, which the operator reported grew 10.9% y/y. Accelerated deployment of LTE in 2012 will help to maintain strong mobile data growth. The regulator’s plans to increase the pace of mobile termination rate (MTR) cuts will add pressure to revenue growth and prices (see Spain: 7 February 2012: Regulator to Expedite MTR Cut in Spain).
• Brazil Telefónica's Most Profitable Unit: The decline in Telefónica's Spanish fortunes saw the operator record greater OIBDA from Brazil than any other region, now accounting for 26.2% of all OIBDA at EUR5.30 billion for 2011. This will not be maintained in 2012, due to one-off results, but it does demonstrate the importance of the Latin American region to Telefónica, with over 50% of its OIBDA coming from the region. Vivo's plans to increase its 3G coverage to 85% of the population by end-2012 will see it grow 3G subscriptions beyond the 8.67 million at September 2011 (see Brazil: 6 January 2012: Vivo 3G Coverage Reaches 2,500 Municipalities in Brazil)
• Mobile Data in Europe: Growth within its European operations continued to be powered by its German operations, with revenues up 4.3% y/y for the year, while growth did slow in the fourth quarter to 1.2% y/y. Across Europe mobile data was a major revenue driver. In the United Kingdom, where it is the leading operator, mobile data average revenue per user (ARPU) grew to EUR10.5, accounting for 45% of total ARPU. In Germany where it is challenging the leading two operators Vodafone and Deutsche Telekom, mobile data accounts for 41% of ARPU. Escalating mobile data costs have led O2 Germany to sign a deal to use Deutsche Telekom's backbone network with the first connections planned for the second quarter of 2012 (see Germany - South Korea: 12 January 2012: Deutsche Telekom Signs Network Sharing and Connected Home Deals).
• Future Growth Drivers: As part of its growth plan Telefónica is looking for growth from machine-to-machine (M2M) and mobile payments. Prior to its results announcement Telefónica announced two key developments in these areas. Telefónica announced that its joint-venture with MasterCard in Latin America would be called Wanda. Wanda will provide mobile payments services across Telefónica’s 12 Latin American operations. It’s European mobile payments service continues to take shape with deals agreed with Sybase, Research In Motion, and Giesecke & Devrient (see Spain: 15 February 2012: Telefónica Selects Sybase 365 for M-Wallet). In its M2M business Telefónica has been tapped by OnStar to provide mobile internet services to OnStar-equipped vehicles by General Motors.