Portugal Telecom's Q3 Revenues Jump on Brazilian Consolidation

Portugal Telecom (PT) has revealed its third-quarter revenues jumped nearly 84% year-on-year (y/y) to EUR1.75 billion (USD2.4 billion), boosted by the consolidation of its 25.3% stake in Brazilian operator Oi, which PT bought earlier this year. The Portuguese incumbent operator saw domestic revenues fall 7.4% y/y, due to falls in the fixed-line sector, while third-quarter sales at Oi totalled EUR801.4 million, making up some 46% of PT's total revenues:

PT also announced its third-quarter earnings before interest, taxes, depreciation and amortisation (EBITDA) rose 71.3% y/y to EUR654.2 million, while capex jumped 57.5% to EUR285.8 million, mainly due to the impact of the proportional consolidation of Oi.

Operationally, PT saw its domestic fixed-line subscribers up 6.3% y/y to 4.71 million in the third quarter, as traditional fixed-line (PTSN/ISDN) subscriptions fell 1.2% y/y, while fixed broadband customers rose 11.2% y/y. Mobile customers in the quarter rose slightly by 0.5% y/y to 7.35 million, and the operator improved its post-paid mix, where subscribers rose 3.3% y/y, as pre-paid customers fell 0.7% y/y. In Brazil, Oi saw mobile customers grow 14.7% y/y to 42.9 million, fuelled by key growth in the pre-paid sector which jumped 15.2% y/y, while post-paid subscribers were up 6.1% y/y. Oi also saw fixed-lines in service fall 6.5% y/y to 19.1 million.

Outlook and Implications

• Portuguese Woes Continue: PT saw declines in both subscriber numbers and consumer spend in its home market, as the ongoing economic crisis in the region continued to suppress the market. While PT continued to dominate the fixed-line market with a 58.3% market share at the end of June 2011, this was down 2.2 percentage points on June 2010, while Zon Multimedia ranked second with a 16.7% market share, up from 13.4% a year ago, followed by Sonaecom with 12.9%. The Portuguese regulator recently revealed that fixed-line connections in Portugal increased by 2.5% y/y to reach 4.4 million at the end of the second quarter of 2011, driven largely by increases in cable VoIP and fibre-optic connections (see Portugal: 28 September 2011: Portuguese Fixed-Line Connections Grow 2.5% in Q2, Driven by Fibre and Cable VoIP Growth). The figures from Anacom show fibre and cable use growing by 26% y/y to make up some 28% of fixed-voice lines, up 5.3% on the same period last year. PT's key fixed-line rival Zon Multimedia recently revealed that its third-quarter revenues were down 3.6% y/y due to declines in satellite TV subscribers; while it saw some significant growth in its triple-play services (see Portugal: 1 November 2011: Zon's Q3 Revenues Drop 3.6%, Sees Triple-Play Growth). Meanwhile, France Telecom is looking to sell its stake in Portugal's Sonaecom, as the French giant seeks to exit stagnant European markets in favour of expansion into more promising emerging regions. Meanwhile, the European Union has recently objected to the non-compete deal between Portugal Telecom and Spanish rival Telefónica, saying it believes the agreement could result in potentially higher prices and less choice for consumers (see Portugal: 26 October 2011: EU Lodges Official Complaint over Telefónica, Portugal Telecom Non-Compete Deal).

• Renewed Focus on Brazil Paying Off: Following the sale of its stake in Brazilian mobile operator Vivo to Spain's Telefónica last year, PT acquired a stake in integrated operator Oi, and has now consolidated this into its overall financial results (see Brazil: 11 July 2011: Portugal Telecom Mulls Merger with Oi Following Cancellation of Golden Shares). PT has revealed that Brazil accounted for over 50% of its operating revenues in the third quarter, while Oi recently announced that its capex for 2011 will be in the 5-billion-real (USD3.1 billion) to BRL5.5 billion range, as the operator will continue to expand its 3G mobile and fixed-broadband networks to new areas (see Brazil: 17 August 2011: Oi Outlines Capex for 2011, Makes Wi-Fi Acquisition). The Brazilian operator is considering deploying LTE in the 1.8-GHz band, depending on the rules for the upcoming 2.5-GHz spectrum (see Brazil: 18 August 2011: Oi Considers LTE in 1.8-GHz Band) while the operator is targeting revenue gains with revamped mobile data plans and the launch of a music-streaming service (see Brazil: 24 October 2011: Oi to Launch Music-Streaming Service and 5 October 2011: Oi Launches New Data Plans). Meanwhile, PT is still thought to be considering a merger with Oi, as the cancellation of the Portuguese government’s golden shares in the incumbent removes a key obstacle to the merger.