WRAPUP 1-LatAm drives Telefonica, E.Europe dents T.Austria

Published: 13 May 2009 02:02:20 PST

* Expansion abroad proves double-edged sword

* Telefonica Q1 profit ahead of forecast

* Spanish firm reiterates '09 guidance

* Telekom Austria Q1 profit misses forecast

* Austrian firm cuts '09 revenue, keeps EBITDA guidance

MADRID/VIENNA, May 13 - Expansion abroad proved a double-edged sword for two of Europe's leading telecoms firms as efforts to offset a slump in their home markets led to sharply differing outcomes in the first three months of the year.

A telecoms boom in Latin America drove forecast-beating first-quarter profits at Spain's Telefonica on Wednesday, while pressure on call rates in recession-hit eastern Europe dented peer Telekom Austria's results.

"(This) may turn out to be one of the toughest quarters of the credit crunch (and) Telefonica has shown impressive stability ... Latin America continues to drive growth forward and has truly become the company's crown jewel," said Michael Kovacocy, European telecoms analyst at Daiwa.

Telefonica beat market expectations with a 9.8 percent rise in net profit, as Latin America helped offset weakness in Spain and allowed the company to stick to full-year forecasts.

Analysts said results at Europe's largest telecoms company by market capitalisation had reassured given Telekom Austria's poor showing, which came after results at Deutsche Telekom and Telecom Italia took a hit from the economic slowdown.

Both Telefonica and Telekom Austria saw home markets facing fierce competition, as cost-conscious customers looked for cheaper mobile rates.

Telekom Austria said its mobile business showed average revenue per user (ARPU) declined in all major markets as higher usage could not offset the impact of lower prices. Prices fell 11 percent in Austria, 7 percent in Bulgaria and 6 percent in Belarus.

The Austrian company cut its revenue outlook as price cuts and the economic downturn caused a 6 percent decline in first-quarter core earnings. Still, it reassured investors that its profit guidance for the year was intact.

At 0937 GMT, shares in Telefonica rose 1.3 percent while Telekom Austria fell 1 percent.

TELEFONICA REASSURES

At Telefonica, net profit rose to 1.69 billion euros ($2.30 billion), versus the average forecast for a rise of 6.5 percent to 1.64 billion in a Reuters poll of 12 analysts.

Chris Alliott, European telecoms analyst at RBS, said the results were "reassuring. Despite the operating environment in Spain being tough, Latin America is making up for it".

Business in Spain, which accounts for less than a third of Telefonica's revenues, is suffering the effects of a severe recession, with mobile pricing in particular under pressure.

Analysts highlighted a 9.5 percent year-on-year fall in ARPU at its Spanish mobile business -- a key measure of profitability.

Latin America however, which also accounts for slightly more than a third of revenue, saw a 4.8 percent rise in revenues thanks to broad-based growth, particularly in internet and mobile telephony.

EASTERN EUROPE WEIGHS

State-controlled Telekom Austria has tapped into the emerging markets in the Balkans and in Belarus to make up for its declining domestic business, but is now suffering as the region entered economic decline and clients cut back on mobile phone calls.

It said 2009 revenue would be "slightly weaker" than previously forecast, but offered costs cuts to offset the shortfall. It still expected to meet its profit guidance and make good on its dividend pledge.

Earnings before interest, tax, depreciation and amortisation (EBITDA) were 455 million euros ($620 million) in the March quarter, driven down by a drop in mobile earnings in Austria and Bulgaria and hit by regulatory price cuts and more competition.

That was versus 478 million euros as forecast in a Reuters poll of 12 analysts.

($1=.7336 euros)