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Brazilian telecom carrier, Telefonica Brasil SA (VIV - Analyst Report) reported first-quarter 2013 net income of R$810.2 million ($405.4 million), down 15.3% year over year.

Revenues rose 2.9% year over year to R$8,555.5 million ($4,282.0 million).                      

Consolidated EBITDA dropped 3.5% year over year to R$2,747.6 million ($1,375.2 million) in the first quarter, with EBITDA margin standing at 32.1% was down 210 basis points (bps). The year-over-year decline was mainly due to restructuring of the organization that took place in the first quarter of the year. Operating expenses rose 6.3% year over year to R$5,807.9 million ($2,906.9 million).

Revenue Segments

Mobile Business revenues climbed 10.4% year over year to R$5,636.3 million ($2,820.9 million) in the reported quarter, primarily driven by data and value added services (VAS), and access and usage revenues.

Average revenue per user (ARPU) grew 3.4% to R$23.1 ($11.6), driven by 14.8% rise in Data ARPU. Customer churn rose to 3.6% from 2.1% recorded in the first quarter of 2011.

As of Mar 31, 2013, the total subscriber base was 75.99 million (up 1.6% year over year). Post-paid subscribers grew 17.4% year over year to 19.518 million, while prepaid decreased 2.9% year over year to 56.47 million customers. 

Fixed Line Business revenues fell 8.9% year over year to R$2,919.2 million ($1,461.1 million). Pay-TV performed the worst with a 23.1% decline in revenues followed by a 13.4% reduction in fixed voice and access. Interconnection revenues also registered a decline of 9.2%.

At the end of the first quarter, the total fixed access lines reached 14.87 million, reflecting a 2.5% year-over-year decrease. Fixed Broadband customers stood at 3.75 million compared with 3.69 million a year ago.  The Pay-TV subscriber base dropped 17.2% year over year to 566,000 customers, while subscriber base at fixed voice segment was 10.55 million, down 3.0% year over year.

Liquidity

Telefonica Brasil – a subsidiary of Telefonica SA – exited the quarter with cash and cash equivalents of R$6,751.1 million ($3,378.9 million) compared with R$2,889.5 million ($1,639.2 million) in the year-ago quarter. Net debt decreased to R$655.2 million ($327.9 million) from R$2,657.7 million ($1,507.7 million) in the corresponding year-ago period. The net debt-to-EBITDA ratio improved to 0.05 times from 0.22 times in the year-ago quarter.

Our Take

We believe that Telefonica Brasil displays long-term opportunities for both fixed-line and mobile businesses, leading to better revenues in the coming quarters. Broadening the subscriber base along with investments in improving the network activity will also aid the company’s profitability.

Telefonica Brasil, which operates with other Latin American telecom service providers like America Movil S.A.B. de C.V. (AMX - Analyst Report)  and Hawaiian Telcom Holdco Inc. (HCOM - Snapshot Report) currently holds a Zacks Rank #3 (Hold).

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