By Christopher Bjork
MADRID-- Telefónica SA on Wednesday said it is embarking on a
"cycle of growth" after the telecommunications company's profit
fell sharply in the fourth quarter because of charges at its
businesses in Venezuela and Europe.
"We're raising our ambitions for the coming two years," Chairman
César Alierta said, citing the company's strategy of becoming a
bigger player in fewer markets and an "evident change" in operating
trends in markets such as Spain.
He also signaled that Telefónica wants to push more aggressively
into premium television services across Latin America, pitting the
Spanish phone giant against the likes of AT&T Inc.'s DirecTV
and Time Warner Cable Enterprises Inc.
Spain's largest telecommunications company said net profit for
the three months ended Dec. 31 was EUR152 million ($172.5 million),
down almost 90% from EUR1.45 billion a year earlier.
The Madrid-based company had already said it was slashing the
value of its assets in Venezuela to reflect the sharp devaluation
of the country's currency. It also assumed restructuring costs at
its German unit linked to its takeover of rival phone operator
E-Plus, and wrote down the value of its Italian holdings. Combined,
these charges lowered Telefónica's quarterly profit by EUR1.06
billion.
Revenue in the fourth quarter fell 14% to EUR12.4 billion. For
the full year, Telefónica said profit fell 30% to EUR3 billion and
revenue declined 12% to EUR50.4 billion.
Telefónica, whose cellphone towers and underground phone
networks span most of Latin America and several of Europe's biggest
countries, has rewired its empire in recent years, exiting markets
where it lacked scale or product offering, and bulking up where it
was already a big player.
This strategy led the firm to exit Ireland and the Czech
Republic, and more recently, the U.K., where it is negotiating the
sale of its O2 unit for GBP10.25 billion ($15.89 billion) to
Hutchison Whampoa Ltd. Chief Financial Officer Angel VilA! said the
company is "highly confident" that the proposed U.K. sale will come
to fruition.
Telefónica is plowing proceeds from some of these sales into
acquisitions it made in Brazil, Germany and Spain. The former
Spanish phone monopoly is betting that having a leading position in
these three markets and others in Latin America will drive growth
in coming years. On Wednesday, the company forecast sales growth of
more than 7% in 2015--excluding from that calculation its sales in
the U.K. and Venezuela--and more than 5% in 2016.
At the end of 2014, Telefónica said it had 341 million
customers, up 6% on the year.
Telefónica signaled that it will continue to invest heavily in
coming years, laying fiber-optic cables in the ground, building out
its pay-television platform and upgrading its cellphone networks.
Capital expenditures will reach 17% of sales in the coming two
years, roughly the same as in 2014, before easing back to 15% of
sales from 2017.
Being able to offer eye-catching and exclusive television
content has become a priority in Telefónica's push to lure in
customers. In one showing of this thirst for content, the company
earlier this month acquired the world-wide rights to broadcast
soccer games played by Barcelona FC. In exchange for a payment of
EUR140 million and a sponsorship deal for another EUR40 million,
Telefónica will control the signal for games played by one of the
world's most popular soccer clubs for the coming two years.
In Spain, Telefónica said the number of subscribers to its
pay-TV product had almost tripled, to 1.9 million. The TV offering
could be significantly strengthened in the coming months when
Telefónica closes the acquisition of Digital+, the country's
leading pay-TV platform. Mr. Alierta, the chairman, said Wednesday
that this deal may get antitrust approval within two months.
A bigger battle for pay-TV customers is brewing in Latin
America, a region with low penetration of such services. There,
Time Warner Cable has been a big player for years, and AT&T
last year gained access to 18 million Latin American customers when
it bought DirecTV. América Móvil SAB de CV, owned by Mexican
billionaire Carlos Slim, has also said it wants to expand its
reach.
"Our goal is to become the biggest provider of pay-television in
Spanish, " Mr. Alierta said during a news conference. "It's a
historic opportunity, and we're not going to let it go to waste,"
he said.
Like rivals, Telefónica is seeing a jump in mobile data traffic,
up 64% on the year, as more customers switched to smartphones. The
company is looking for ways to cash in on higher data consumption.
A third of subscribers use more data than they have subscribed to,
leaving room for Telefónica to upgrade users to bigger and more
expensive data packages in coming years.
In Spain, where Telefónica lost millions of customers during
crisis years to cheaper rivals, the company is drawing new
customers and retaining existing ones by bundling together
high-speed Internet, television, fixed-line phone services and
mobile coverage in a single product. After more than five years of
falling sales, a modest economic rebound in Spain is helping sales
stabilize, and Mr. Alierta said he expects revenues to start
growing again in 2015.
In Brazil, Telefónica expects to close the multibillion-dollar
acquisition of GVT in the first half of the year, executives said
during a conference call Wednesday. The deal will boost
Telefónica's position as the leading operator in the country.
Revenue and margins from Latin America's largest economy fell in
the quarter, while the number of customers rose.
In Germany, the restructuring costs associated with the takeover
of E-Plus led Telefónica to a quarterly loss, which it expects to
compensate for by considerable cost savings in coming years.
Telefónica said it had 47.7 million users in the country.
Fourth-quarter revenue at its German unit jumped 62% thanks to the
addition of E-Plus.
Write to Christopher Bjork at christopher.bjork@wsj.com
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