Telefonica announces encouraging results

Serafino Abate, Research Director

Telefonica today announced its results for Q1 2004. Revenue grew by 7.7% compared with Q1 2003, reaching euro 6.96bn. Thanks to a reduction in operating costs, EBITDA grew faster than revenues, up by 10.4% to euro 3.11bn. Telefonica Moviles showed the fastest growth, an impressive 20% compared to the same quarter In 2003, and now contributes almost 40% of the Telefonica Group revenues.

Telefonica's 2003 results were negatively affected by exchange rate fluctuations in Latin America. However the good news for Telefonica is that quarterly organic revenue growth of 9% and EBITDA growth of 10.5% seems to show that the adverse effect of this volatility is at least softening.

Telefonica Moviles underpinned the group's growth, with its domestic operation posting an impressive 17.3% revenue growth year-on-year. Meanwhile other parts of Telefonica's business also performed well, with both the directories business and Terra delivering double digit growth.

However, the domestic fixed operations, once the group's powerhouse, continued to lose revenues on traditional services, down nearly 5% over the year. Good performances from the wholesale business, internet and broadband services were just enough to bring slight revenue growth for the business unit of 1.7%.

So although Telefonica Moviles shows that the group can succeed in very competitive conditions, Telefonica must deal with the inevitable decline in revenues from traditional services swiftly and effectively over the coming quarters. If Telefonica can do this whilst maintaining its mobile growth, and if the exchange rate volatility continues to calm, the group could be in for a good 2004.

This article was taken from Ovum's new service: Euroview. Serafino Abate is an analyst with Interconnect@Ovum and a specialist in the Spanish and the Italian telecom markets. To find out more about these issues you can contact him at soa@ovum.com.