Telefonica Moviles: domestic bliss
Telefonica Moviles has beaten expectations with a 28% rise in nine-month profit. The improvement was helped by a growing number of clients in Brazil and Mexico, although Moviles' continued progress in its home market was the most impressive. The results highlight the wisdom of Moviles' decision to abandon Northern Europe and focus on the markets where it has a competitive advantage.
Moviles is the worldwide mobile arm of Telefonica SA, and is its biggest cash generator. For the nine-month period, Moviles reported net profit of E1.26 billion, compared to a E3.9 billion net loss in 2002, when it ran up nearly E3 billion worth of charges from closing its 3G programs in Austria, Germany, Italy and Switzerland. During the nine months, revenue increased 7% to E7.30 billion, compared with E6.82 billion for the same period in 2002.
For the third quarter ending September 30, it reported net profit up 16% at E478.7 million. Revenue rose 15.4% to E2.66 billion.
The operator has nearly 47.8 million customers around the world, including 19.1 million in Spain, and 26.8 million in Latin America, which contributed almost 25% of total revenue. It is the market leader in Brazil, where it added 1 million new customers in the third quarter to bring its client base to 18.5 million. It has an estimated market share of 46%. For the nine-month period, Brazil contributed E973.3 million to the group's sales.
Moviles' second largest Latin American market is Mexico, where its customer base rose by 21.1% year-on-year to 2.73 million subscribers. Nine-month revenue increased 29% to E380.8 million. It is also making inroads by growing its network deployment to 56 cities, and expanding its distribution channel.
But it was its home market where the operator most impressed the market. Spain accounts for three-quarters of Moviles' total revenues, and it is considered to be a mature market with high saturation levels. However, during the third quarter, Moviles managed to add 230,000 customers to a total of 19.1 million subscribers, a 14.9% rise in its domestic market. Average revenue per user rose 2.6% year-on-year to E29.60. It also moved more than 300,000 people from cheap pre-paid deals to the more lucrative contract subscriptions during the quarter.
Moviles' strong results - both at home, and in its Latin American operations - highlight the wisdom of pulling the plug on its money-losing Northern European 3G operations. Moviles is left in a strong position to make money at home, where it has remained the dominant operator, and in Latin America, where cultural similarities with Spain put it at an advantage over other foreign entrants. Moviles' prospects for 2004 look good.