Global Insight Perspective | |
Significance | Oi's subscriber base has shown a 6.3% year-on-year (y/y) growth and reached 29.25 million. |
Implications | Oi will continue to focus on organic growth from alternative revenue-generating sources as local telephony is experiencing negative figures. |
Outlook | The positive operational performance in the broadband and mobile segments, and Oi's strategic plans to become a global service provider by introducing video offerings in its service portfolio will attract interest for a possible buyout deal from companies that want to enter the Brazilian telecoms market. |
Operational Performance
Fixed lines in service at the end of the second quarter of 2007 remained on the same level as last year, totalling 14,347,000. The majority of these (78.1%) are claimed by the residential segment, a low 4% belongs to public payphones, and the remaining 17.9% to business subscribers. ADSL customers went up by 30.5% year-on-year (y/y) to 1,266,000, while mobile users increased by 13.3% y/y to 13,634,000. Post-paid customers only constituted 18% of the total, compared to 22% for second-largest TIM Brasil. Oi's market share in Region I stands at 26.5%, whereas its participation in the whole of the national territory is 12.78%. Mobile ARPU has also gone up by 20.8% y/y to 21.5 reais (US$11.54), compared to 34.6 reais (US$18.74) for TIM, 29.9 reais (US$16.08) for leading operator Vivo, and 27 reais (US$14.49) for América Móvil's Claro.
Financial Performance
Consolidated gross revenue for the quarter totalled 6,210 million reais (US$3,333.82 million), showing a marginal 0.8% quarter-on-quarter (q/q) increase, up 6.6% compared to the same period last year. Among the services that experienced an increase in revenue were long-distance, fixed-to-mobile calls (26.3% y/y), wireless services (44.2% y/y), and data services (16.6% y/y), while local traffic and network usage dropped by 24.6% and 13.6% y/y to 475 million reais (US$255 million) and 146 million reais (US$78.38 million) respectively. Earnings before interest, tax, depreciation and amortisation (EBITDA) reached 1,596 million reais (US$856.81 million) for the quarter, which represents an EBITDA margin of 36.6%. This is 2.9 percentage points higher than the one recorded in the first trimester of the year, but 1.8 percentage points lower with regards to the same quarter of last year. Net earnings grew by 65.4% y/y and reached 468 million reais (US$251.24 million). The company has invested the total sum of 387 million reais (US$207.76 million), or 8.9% of net revenue, during this quarter. The majority of this (83.5%) was allocated to fixed telephony, while the remainder went to the mobile segment. According to the operator's announcement, the focus was given to developing the data-communication network and infrastructure to augment transmission capacity and broadband platform expansion.
Outlook and Implications
Oi is Brazil's largest telecoms service provider with a total subscriber base of 29.25 million. This is the third straight quarter where profit growth is attributed to a significant rise in subscriber numbers, strong operating performance with revenue figures from mobile services increased by 44.2% and stable macro-economic indicators (interest and exchange rates). As part of a plan to increase profitability and exert greater control over the company, holding company Telemar Participações paid 681.2 million Brazilian reais (US$370.2 million) for 10.09 million class A preferred shares in Telemar Norte Leste, while the tender offer for Tele Norte Leste Participações’ preferred shares has been postponed to 14 August 2007 (see Brazil: 25 July 2007: Telemar Pays US$370.2 mil. for Buyback of Telemar Norte Leste Shares). The effects of the restructuring process will reflect on next quarters' results. The good operational performance has recently attracted interest for a takeover deal of 50% of the company's capital from Portuguese incumbent operator Portugal Telecom (PT) (see Brazil: 30 May 2007: Portugal Telecom Plans a Bid for Brazil's Telemar). More specifically, PT was planning to launch a friendly bid for an estimated investment of 3.5 billion euro (US$4.7 billion), which was considered to be overpriced by certain members of PT's executive commission. Despite the fact that Oi's shareholders have finally rejected PT's offer, Global Insight expects to see increased interest in the acquisition of a controlling stake in Oi in the future. This is enforced by the upcoming inclusion of video-on-demand offerings in Oi's product portfolio through a commercial partnership with the country's largest DTH operator, Sky, and the acquisition of pay-TV operator Way Brasil for 132 million reais (US$60 million) in July 2006, which allowed Oi to enter the pay-TV market. Despite Anatel's decision to veto this development, Oi believes that "the regulations will eventually permit the provision of triple-play to benefit customers".