IHS Global Insight Perspective | |
Significance | Telefónica chairman César Alierta has said that the firm is planning on increasing its capital expenditure (capex) spend between 2011 and 2014. |
Implications | The planned investment is 52% larger than its capex spend in the four preceding years. |
Outlook | The capex increase demonstrates the strategic importance of Brazil to Telefónica, following its full consolidation of Vivo. |
Telefónica is planning on investing 24.3 billion reais (USD14.6 billion) in Brazil between 2011 and 2014, the company said in a statement. Telefónica chairman César Alierta said that the investment would be an increase of 52% over its investment in the last four years. The funds will be used to modernise and expand its existing network, in addition to covering the cost of new licences and merger and acquisition (M&A) activity.
Alierta said that Telefónica was heavily investing in its networks and services with the aim of covering close to 100% of Brazilian municipalities with mobile and broadband. In Brazil, Telefónica owns the mobile operator Vivo and the fixed-line operator Telesp.
Outlook and Implications
- Investment a Sign of Brazil’s Importance to Telefónica: The increase in capital expenditure (capex) in Brazil highlights the strategic importance of Brazil to Telefónica. Following the operator’s full consolidation of Vivo, revenues from Brazil now account for 20% of Telefónica’s revenues and 16% of its operating income before depreciation and amortisation (OIBDA). Given the growth rate in Brazil’s economy and telecoms market, the country’s contribution to Telefónica’s results is set to grow.
- Limited Scope for M&A Activity: As Vivo and Telesp are now approaching national coverage, the scope for further M&A growth is reduced. In the mobile market, Claro, Oi, and TIM Brasil are owned by large foreign-owned telcos that will be reluctant to exit the Brazilian market; Portugal Telecom sold its stake in Vivo to take up a large shareholding in Oi. There may be opportunities to acquire aeiou, CTBC Celular, or Sercomtel Celular. However, the small, regional nature of these operators would add little to Vivo’s existing portfolio; the three operators have a combined subscriber base of less than 1 million. In the fixed-line market, there is room for Telesp to expand its fixed-line operations outside of its São Paulo home market.
- Next-Generation Network Investment: Given the three-year timescale, a portion of the capex will be reserved to purchase a licence to deploy a Long-Term Evolution network (LTE). The deployment of LTE would significantly enhance its broadband and mobile data offering. Currently, Vivo offers HSDPA with 1.8-Mbps download speeds.