1st Quarter Results 2007 Pt 2
Telefonica SA
16 May 2007
PART 2 OF 2
RESULTS BY REGIONAL BUSINESS UNITS
Telefonica O2 Europe
The results of Telefonica O2 Europe for the first quarter include the 3 month
period ended 31 March 2007. In the comparable period last year, O2 Group was
included for the 2 month period February-March 2006 and Telefonica O2 Czech
Republic and Telefonica Deutschland (now merged with O2 Germany) were included
for the 3 month period ended 31 March 2006. In the first quarter of 2006, O2
Germany includes results from Telefonica Deutschland for the February-March
period.
At the end of March 2007, Telefonica O2 Europe revenue was 3,534 million euros
(2,409 million euros in 2006), and operating income before depreciation and
amortization (OIBDA) reached 933 million euros (756 million euros in 2006).
Operating Income (OI) was 15 million euros in the first quarter, mainly affected
by the impact of higher assets amortizations derived from the Purchasing Price
Allocation process, which also impacted negatively the 2006 OI comparable figure
73 milion euros.
Telefonica O2 Europe CapEx for the period ended March 2007 amounted to 493
million euros (406 million euros in the same quarter of last year).
Strategic and operational highlights:
• Performing ahead of plans in Slovakia. Telefonica O2 Slovakia launched a
pre-registration campaign on 15 December 2006 for its launch offer 'O2
Jednotky', offering pre-pay on-net calls for 2 Slovak crowns per minute and
8.50 Slovak crowns per minute for calls to all other networks and the Czech
Republic, at anytime of the day. This generated over 600 thousand
pre-registration applications. Commercial operations began on 2 February
2007 and in the first 12 days over 110,000 active customers were acquired.
The second offer, 'O2 Narovinu' launched in February, offering calls to all
networks in Slovakia at any time for a flat rate of 8.50 Slovak crowns per
minute. By the end of March the company had recorded 387 thousand active
customers; by mid-April this number had reached over 400,000, ahead of
initial plans to target a 5% market share by year end.
• Completion of the Strategic Review of Airwave. The strategic review of
Airwave, announced in December 2006 and conducted by JPMorgan Cazenove,
resulted in the announcement by Telefonica on 18 April that it had signed a
definitive agreement with Guardian Digital Communications Ltd, wholly owned
by Macquarie Communications Infrastructure Group and Macquarie European
Infrastructure Fund II, on the disposal of Airwave for a total firm value of
2,982 million euros (2,015 million British pounds). This transaction was
completed on 20th April 2007 and generated total net proceeds of 2,860
million euros (1,932 million British pounds).
• O2 extends 'My Europe' roaming tariff. The reach of the My Europe 'high
roamer' service, offering discounts of up to 70% over standard voice roaming
rates, was extended significantly during the quarter. For O2 Germany
subscribers the service is now available in 19 European countries and for O2
UK customers in 31 European countries.
In the UK, the My Europe Extra 'high roamer' service has been available for
customers travelling to Spain since October 2006, and now includes France,
Germany, and Italy among 30 new countries in addition to Spain. For a
monthly subscription, travellers can make voice calls within most of
mainland Europe and back to the UK for a flat-rate fee of 25 pence per
minute. There is no charge for calls received regardless of which network
the call is received on. For O2 Germany customers, outbound voice calls cost
39 euro cents per minute from 19 European countries.
• Telefonica O2 Czech Republic launches first bundled offers - O2 Duo Mobile
and Trio. In March Telefonica O2 Czech Republic launched a complete package
of telecommunications and entertainment services for one price under the
name 'O2 Trio'. This new package provides customers with three services in
one - O2 Internet Expres, O2TV multimedia television, and unlimited free
national and local calling to fixed line networks for one monthly fee. The
O2 Duo Mobile service, launched at the beginning of April, offers customers
a fast ADSL connection and mobile calling for one monthly fee.
O2 UK
Total revenues in the 3 months to 31 March 2007 were 1,759 million euros, and
increase of 65.5% in local currency compared to the 2 month period 1 February to
31 March 2006. On a like for like basis, growth was 10.2% in local currency. Net
service revenue for the 3 months to 31 March was 1,621 million euros, an
increase of 9.7% in local currency compared to the same period last year, driven
by continued strong customer and ARPU growth.
Operating income before depreciation and amortization (OIBDA) for the 3 months
to 31 March was 422 million euros, an increase of 38.5% in local currency
compared to the 2 month period 1 February to 31 March 2006. On a like for like
basis, this equates to a decline of 4.6% in local currency. The change in year
end from March to December has impacted the year on year growth, with the first
quarter of 2006 representing the last quarter of O2's old reporting year (which
ended in March). This has also led to different commercial activity in the first
quarter of 2007 compared to 2006, and consequently higher commercial costs. As
the year progresses, the year on year decline in OIBDA will be reversed.
OIBDA margin in the first quarter was 24.0%, reflecting additional investment in
the customer proposition, mainly focused on retention, with upgrades in the
quarter 22% higher than the same period last year. Margin levels for the rest of
the year are expected to be above the level reported in the first quarter due to
a reduction in commercial costs.
The quarter again saw tough competition in the market, but the business
continued to perform well. Gross additions in the quarter were around 10% lower
than the same period in 2006, reflecting the increasingly mature nature of the
UK market but also the focus on customer retention. A total of 118,000 net new
customers were added in the quarter, taking the base to 17.8 million, 8.6%
higher than at the same time last year (excluding the Tesco Mobile customer
base, which recently reported 1.4 million customers). O2 UK's own channels
accounted for around 60% of gross connections in the quarter. Blended average
monthly churn in the quarter was flat year on year at 2.6%
A total of 80,000 net new contract customers were added in the quarter and at
the end of the period contract customers made up 35.5% of the total base,
compared to 34.8% in the same period last year. Quarterly monthly contract ARPU
of 63.2 euros was down 0.9% quarter on quarter in local currency, due to the
usual seasonal variations in business usage (higher in October and November vs.
February and March), and broadly flat compared to the first quarter last year.
A total of 38,000 net new pre-pay customers were added in the quarter. Quarterly
monthly pre-pay ARPU of 17.0 euros was 6.7% lower in local currency than the
fourth quarter last year and 0.9% lower compared to the first quarter of last
year.
As a result, O2 UK's blended monthly ARPU of 33.3 euros was 2.8% lower than the
fourth quarter last year in local currency, and 0.8% higher than the first
quarter of last year, reflecting the increased weight of contract customers in
the base and the continued growth in data ARPU offsetting declines in voice
ARPU.
Quarterly monthly minutes of use were up 10.6% year on year at 179 minutes a
month, driven by propositions such as 'Treats' and 'Long Weekends'.
Data ARPU of 11.0 euros was 10.2% higher in local currency than the same period
last year and 2.8% higher than the previous quarter, driven primarily by growth
in text message volumes, up 29% year on year, as well as increasing usage of a
range of non-SMS services.
O2 UK's broadband unit Be had rolled out to over 632 exchanges by the end of the
quarter, giving its broadband network a population coverage of around 40%, with
24,000 customers.
CapEx in the first quarter was 181 million euros, with continued expenditure on
rolling out coverage of the 3G network as well as investment in the existing 2G
network to ensure a high level of service.
O2 UK (in conjunction with Airwave) was ranked 5th in The Sunday Times' 2007
Best Big Companies to Work For List, the highest ranking ever for a mobile
operator, and has been awarded a two-star accreditation denoting an 'outstanding
' company. In addition, O2 was given first place in the 'Best for Well Being'
category and was short-listed in the 'Best for Giving Something Back' category,
an outstanding achievement for the first year that O2 has participated in the
survey.
O2 UK promoted a number of products and services during the quarter, aimed at
acquisition and retention of customers and revenue growth. These included:
• Fair Deal - existing pay monthly customers get the same as new customers,
plus something extra with O2 Treats;
• Upgrade with O2 - pre-pay upgrades get 10% of top-ups back to use as a
discount on the cost of a new handset or on call time;
• O2 Energy Saver options - launched as part of the 'We're in this together'
campaign to help individuals cut their personal CO2 emissions. Option one
offers customers who decide not to replace their phone at the end of their
contract (thus saving the energy involved in the manufacture and
distribution of a new device) a choice of either 100 British pounds credit,
or 95 British pounds credit and a 5 British pounds donation to the O2 Energy
Saver fund. O2 UK matches this donation, giving a total of £10. The second
option offers a SIM only 'paperless' tariff, with all bills and services
delivered online, provided the customer keeps their current phone. For every
customer who signs up O2 UK will make a 5 British pounds donation to the O2
Energy Saver fund;
• Business Specialist & SME Starter Pack - SME customers now have access to
Business Specialists in local O2 retail stores and by phone for assistance
and advice. The SME Starter Pack Tariff offers 2 free months' subscription
to any of O2's bundled business voice tariffs, a dedicated UK-based customer
service team available 24 hours a day and 2 months' free access to the O2
Concierge service;
• The Xda Graphite, a new 3G Microsoft(R) Windows(R) Mobile 5.0 smartphone
for customers that want the functionality of a PDA on a phone. The Xda
Graphite features direct push email giving real time access to Microsoft(R)
Outlook(R) Inbox, Calendar, Contacts and Tasks, 3G and WLAN connectivity, an
MP3 player and 2.0 megapixel camera.
O2 GERMANY
O2 Germany now includes Telefonica Deutschland and comparable 2006 figures have
been restated on this basis. Total revenues in the 3 months to 31 March 2007
were 843 million euros, an increase of 46.1% compared to the two months period
ended 31 March 2006. On a like for like basis, this represents a decline of
3.0%. Mobile service revenue for the 3 months to 31 March 2007 was 697 million
euros, down 4.6% on a like-for-like basis compared to the same period last year,
reflecting the continued ARPU weakness in the German market and the impact of
the 20% termination rate cut in November 2006, partly offset by growth of the
customer base. The termination rate cut reduced first quarter service revenue by
over 4%.
Operating income before depreciation and amortization (OIBDA) for the 3 months
to 31 March 2007 was 161 million euros, an increase of 23.6% compared to the
period ended 31 March 2006, and on a like for like basis representing a decline
of 5.6%. The change in year end from March to December has impacted the year on
year growth, with the first quarter of 2006 representing the last quarter of O2'
s old reporting year (which ended in March). This has also led to different
commercial activity in the first quarter of 2007 compared to 2006 and
consequently higher commercial costs. As the year progresses, the year on year
decline in OIBDA will be reversed.
OIBDA margin in the first quarter was 19.1%, reflecting the consolidation of
Telefonica Deutschland, as well as additional investment in the customer
proposition, mainly focused on retention with upgrades in the quarter 24% higher
than the same period last year.
In a highly competitive environment, a total of 159,000 net new customers were
added in the quarter, taking the base to 11.2 million, 10.7% higher than at the
same time last year. The Tchibo Mobile customer base grew by 46,000 to 873,000
by the end of the quarter.
O2 Germany added a total of 94,000 net new contract customers in the quarter,
with quarterly monthly ARPU of 34.2 euros, 12.7% lower than the previous
quarter, and 11.2% lower than the same quarter last year. This reflected the
impact of the termination rate cut in November 2006, seasonal usage patterns,
increasing competition in the German market and the introduction of new customer
offers. For a segment of the contract customer base that remains on legacy
tariffs, usage and consequently ARPU has declined as the market has become more
competitive. In future quarters campaigns will be launched to migrate these
customers to better value tariffs to stimulate usage and explore ARPU potential.
Plans to acquire more higher value contract customers will also be executed
throughout the rest of the year.
A total of 65,000 net new pre-pay customers were added in the quarter. Quarterly
monthly ARPU of 6.8 euros was 17.8% lower than the previous quarter and 25.7%
lower than the first quarter last year, reflecting, in addition to the above
mentioned factors, higher market penetration and the growth in multiple SIM
ownership and lower minutes of use. Additional pre-pay customer acquisition
campaigns featuring both new O2 propositions and new offers from partners, will
be launched during the rest of the year.
Blended quarterly monthly ARPU in the first quarter was 20.5 euros, down 13.5%
from the previous quarter and 14.8% from the same quarter last year. This trend
reflects the ongoing impact of the termination rate cuts, the rapid growth in
the pre-pay customer base over the past 12 months, which now makes up over 50%
of the total base, and the increasingly competitive market environment.
Termination rate cuts reduced monthly ARPU in the quarter by approximately 1
euro.
Blended quarterly monthly minutes of use grew by 1.6% year on year to 129
minutes, driven by new propositions such as Genion flat rate and Genion S/M/L.
Since launch in late November 2006, the new Genion S/M/L tariffs have attracted
758,000 customers, with significantly higher MoU than the average O2 customer
(around 3 times). O2 Germany now has a total of 3.94 million Genion customers
(70% of the post-pay base), with 83% of all net new post-pay customers opting
for one of the Genion tariffs.
Monthly data ARPU was 5.1 euros, 13.9% less than the previous quarter and 14.2%
lower than the first quarter last year due to the higher number of lower
spending pre-pay users in the base and a shift from SMS to voice usage with the
introduction of flat rate voice tariffs. To address the imbalance of voice vs.
data and SMS tariffs O2 Germany refreshed its data and SMS packs during the
quarter
CapEx in the quarter was 203 million euros, with continued expenditure on both
the 3G and 2G networks.
'Kundenmonitor Deutschland', the largest independent and cross-sector study
measuring customer satisfaction in Germany, ranked O2 as the company with the
highest customer satisfaction in the mobile phone service provider sector.
O2 DSL had acquired 31,000 customers by the end of the quarter, with Telefonica
Deutschland reporting 258,800 ULL lines at the end of the quarter, from just
over 11,000 lines at the end of the first quarter in 2006. Equivalent ADSL lines
in service reached just over 780,000 at the end of March, an increase of 58%
year on year. During the quarter Telefonica Deutschland signed an agreement with
HanseNet Telekommunikation, owned by Telecom Italia, to expand their strategic
relationship and expand the availability of the Alice product through the supply
of a fixed number of additional DSL lines. Since early 2006, HanseNet's 'Alice'
service has been using Telefonica's DSL infrastructure. The expansion of the
agreement between the two companies underscores Telefonica's leading position as
an infrastructure service provider in Germany.
The Telefonica Deutschland DSL network will access almost 60% of all German
households by summer 2007, with almost 2,500 main distribution frames (MDF's),
and will operate one of the largest platforms enabling multimedia applications
such as voice over Internet protocol (VOIP), TV via DSL, video on demand, or
HDTV broadcasting based on ADSL2+ technology. In addition, HanseNet has also
agreed an exclusive contract with O2 Germany to offer mobile services through
its AOL brand in Germany.
O2 Germany launched a number of new products and services during the quarter,
including:
• My Europe Top, offering new international tariffs to 19 European
countries. Calls both from My Europe Top country to Germany, and within the
country being visited, cost 39 cents/min. There is no charge for receiving a
call for the first 100 minutes, with a 39 cents/min charge for additional
minutes. My Europe is available as a tariff option with a monthly fee of 8
euros;
• Extension of the new Genion S/M/L tariff scheme to include mobile Internet
access and SMS. Within the homezone the Internet@home pack S costs 3 cent/
min for Internet access; the M pack includes 1,000 MB for 10 euros/month.
For usage outside the homezone Internet pack S costs 9 cent/min and Internet
pack M includes 200 MB for 10 EUR/month. The L pack, for access both within
and outside the homezone, includes 5 GB for 25 euros/month.
• SMS packs were also revised - the S pack, priced at 5 euros/month,
includes free on-net SMS and 19 cent/SMS for off-net SMS; the M pack costs
12 euros/month and includes 100 SMS/month to all networks; the L pack, for
20 euros/month, includes 250 SMS/month to all networks. The Internet and SMS
packs are available for all O2 Genion and O2 Active customers;
• Business customer promotion - from 15 March until 30 April 2007 new
business customers taking the Business Flat tariff (25 euros/month SIM only,
35 euros with handset) receive 50 off-net minutes/month for 6 months.
O2 IRELAND
Revenues in the 3 months to 31 March were 237 million euros, an increase of
52.8% compared to the 2 month period 1 February to 31 March 2006, representing
growth of 1.7% on a like for like basis. Mobile service revenue for the 3 months
to 31 March was 224 million euros, an increase of 1.1% compared to the same
period of last year, reflecting declines in ARPU, mainly as a result of a
further termination rate cut in January 2007 (RPI minus 11%), offset by growth
of the customer base. The termination rate cut reduced first quarter service
revenue by 0.7%.
Operating income before depreciation and amortization (OIBDA) for the 3 months
to 31 March was 78 million euros, an increase of 21.3% compared to the 2 month
period 1 February to 31 March 2006, representing a decline of 16.2% on a like
for like basis. The change in year end from March to December has impacted the
year on year growth, with the first quarter of 2006 representing the last
quarter of O2's old reporting year (which ended in March). This has led to
different commercial activity in the first quarter of 2007 compared to 2006 and
consequently higher commercial costs. As the year progresses, the year on year
decline in OIBDA will be reversed. OIBDA margin in the first quarter was 32.9%.
In a competitive market O2 Ireland traded well, with gross connections at a
broadly similar level to the first quarter last year. 1,000 net new customers
were added in total during the quarter, taking the total base to 1.6 million
customers, 2.5% higher than at the same time last year.
O2 Ireland added a total of 14,000 net new contract customers in the quarter.
Quarterly monthly ARPU of 82.0 euros was 5.9% lower than the first quarter last
year but 0.7% ahead of the previous quarter.
In keeping with previous March quarters and reflecting the impact of inactivity
on the base after the Christmas period, the pre-pay customer base fell during
the quarter, by 13,000 customers. Monthly pre-pay ARPU was 28.0 euros, down 3.0%
on the same period a year ago and 5.3% compared to the previous quarter.
Blended monthly ARPU of 44.2 euros was reduced by approximately 0.3 euros due to
the termination rate cut and was 1.0% lower than the same quarter last year and
down 1.7% quarter on quarter.
Quarterly monthly minutes of use increased by 9.1% year on year to 240 minutes,
mainly due to the ongoing success of usage stimulation promotions such as 1 euro
cent weekends on pre-pay.
Monthly data ARPU was 11.5 euros, 15.4% higher than the fourth quarter last year
and 20.9% higher than the first quarter last year.
In addition O2 Ireland launched a number of pricing initiatives and services
during the quarter. These included:
• From 15th Feb - 1st April: 6 months Double Minutes and 3 months free
insurance for first time connections on all Active Life price plans
(excluding Active 40,Text 400 and Easy Life plans).
• Start of consumer trials of broadcast mobile tv. 350 O2 customers in the
greater Dublin area will be able to catch their favourite shows on the move,
with thirteen TV channels signed up for the trial, including RTE1, RTE2,
TV3, Sky Sports, Sky News, Setanta Sports and The Discovery Channel, as well
as interactive music and games channels. O2 is the first mobile operator in
Ireland to trial broadcast mobile TV with consumers. The trial will run
until 31st August 2007
O2 Ireland also continued to promote the following offers:
• Business Unlimited. A major initiative for the business sector giving free
on-net calls in Ireland for a flat monthly fee per user. This tariff
represents significant potential savings for small and medium sized
businesses in Ireland, which make on average 40% of their calls to O2
mobiles.
• Extension of the Napster mobile service to all 3G handsets. Napster Mobile
allows O2 Ireland customers to search, browse, preview and purchase content
from Napster's immense music catalogue of over two million songs. The
subscription fee to download tracks is free until 31st May for pre-pay and
postpay customers.
O2 AIRWAVE
During the quarter Airwave announced the Welsh Ambulance Service had signed a 10
year contract worth 32 million British pounds to use its service, as well as a
contract with London Underground Limited valued at 115 million British pounds to
provide Airwave coverage for the emergency services throughout London's
underground network. Airwave has now contracted with all the 'blue light'
emergency services in the UK to supply a secure digital communications system.
In Late March Airwave announced it had won it first overseas contract, supplying
a consultancy service to Siemens for the Norwegian public safety radio network.
Siemens has entered into a turn-key contract with the Norwegian authorities for
the network and will also provide the control rooms in conjunction with
Frequentis as well as operation and maintenance of the network. The first users
of the network will be the Norwegian public emergency services of fire, police
and health. O2 Airwave will provide consultancy advice on the design and
implementation of the network operations. This advice will draw directly upon O2
Airwave's own experience of operating the UK's national TETRA communications
network which provides secure mobile communications to over 220,000 users.
As previously stated, Telefonica announced on 18 April that it had signed a
definitive agreement with Guardian Digital Communications Ltd, wholly owned by
Macquarie Communications Infrastructure Group and Macquarie European
Infrastructure Fund II, on the disposal of Airwave. The transaction was
completed on 20 April 2007 and going forwards Airwave will no longer be included
in the review of Telefonica O2 Europe.
TELEFONICA O2 CZECH REPUBLIC
Revenues for the first quarter amounted to 539 million euros, up 2.6% in local
currency. The Czech mobile business was the key driver of this growth, with the
Czech fixed line business reporting a slight decrease in revenues year on year ,
reversing the trend seen during recent quarters.
Consolidated operating expenses grew by 5.8% in local currency in the first
three months of the year, mainly due to an increase in external costs and costs
related to the launch of the Slovak business, which started commercial service
on 2 February. Operating income before depreciation and amortization (OIBDA)
amounted to 251 million euros, a decrease of 2.1% in local currency, giving a
margin of 46.6%, 2.3 percentage points lower than the first quarter of 2006,
with around 2 points coming from the impact of the Slovak operations.
Total CapEx for the Telefonica O2 Czech Republic Group in the first quarter
amounted to 29 million euros, a decrease of 16.3% in local currency. A 45.6%
decrease in CapEx related to the mobile segment, due to significant investments
in the UMTS network recorded during the first quarter of 2006, was partially
offset by an increase in 'other subsidiaries' (17.3% of total CapEx), mainly due
to the deployment of infrastructures in Slovakia. However, the year on year
decrease in total CapEx in the first quarter does not represent the expected
trend for the rest of the year, with CapEx for the full year still expected to
be around 300 million euros.
The Czech mobile business continued its focus on increasing the attractiveness
of traditional voice and data packages and its policy of pre-pay to contract
customer migration to increase the ARPU potential of these customers and reduce
churn. The total number of mobile customers increased by 3.1% year-on-year to
4.8 million at the end of March. A total of 91,000 net contract customers were
added in the quarter, bringing the total contract base to 1.97 million, an
increase of 19.7% year on year, with contract customers representing 40.6% of
total customer base from a 35.0% a year ago. The pre-pay customer base declined
by 5.9% year on year to 2.87 million at the end of March, with a reduction of
116,000 customers in the first quarter alone, mainly due to the pre-pay to
contract migration strategy. Blended average monthly churn in the first quarter
amounted to 2.0%, up from 1.8% in the same period of last year.
Revenues for the Czech mobile business increased by 4.8% year-on-year in local
currency to reach 272 million euros, with a 5.8% year on year increase in
revenues from voice services, reflecting both the increasing share of contract
customers paying monthly fees and growing usage - average blended minutes of use
increased by 13.5% year on year to 109 minutes. Average monthly blended ARPU was
17.7 euros, an increase of 1.2% year on year in local currency. Internet&Data
revenues, which represent close to 6% of domestic mobile revenues, recorded a
17.9% year-on-year increase in local currency mainly due to the success of flat
data rates on CDMA, GPRS and UMTS technologies (174,000 customers at the end of
March).
Activities in the Czech fixed line business continue to be focus on the
extension of broadband Internet services and increasingly the ICT/Business
Solutions area. In March and April, Telefonica O2 Czech Republic introduced its
first convergent product (O2 Duo Mobile) and also its first triple play offer
(O2 Trio), aiming to enhance the value of the fixed line offer and reduce churn.
The total number of fixed telephony accesses fell by 18.8% to reach 2,3 million
at the end of March, recording net losses of 114,000 in the first quarter,
compared to 162,000 net disconnections in the same period of the previous year,
reflecting the strong fixed to mobile substitution effect in the Czech market.
Total broadband ADSL accesses (retail+wholesale) reached 503,000 at the end of
March, with a net gain of 33,000 accesses in the first quarter. Retail accesses
represented 87.1% of total ADSL accesses compared to 83.8% at the end of the
first quarter 2006. Total number of O2 TV customers increased to 26,000 at the
end of March, with currently about 40% of net additions being self-installed by
customers.
Revenues for the Czech fixed line business went down slightly by 0.1%
year-on-year in local currency to reach 266 million euros. Year on year growth
of 20.7% in the Internet and Broadband business (representing 12.8% of fixed
line revenues) offset the decline of 9.6% in the Traditional Voice business
(32.5% of fixed line revenues) and the decline of 1.5% in Traditional Access
business (34.0% of fixed line revenues), the latter being positively impacted by
the residential monthly fees increase in April 2006. Revenues from Data
services, which represent 13.9% of fixed line revenues, decreased slightly by
0.3% year-on-year in local currency as a decline of 7.2% in revenues from leased
line services was almost offset by a 9.0% year-on-year increase of revenues from
network data services mainly based on IP over ADSL accesses.
Telefonica O2 Slovakia launched its pre-registration campaign for O2 Jednotkas
on 15th December 2006, which resulted in over 600,000 pre-subscribers.
Commercial activity in the pre-pay segment began on 2 February, followed by the
launch of the comprehensive O2 Narovinu tariff. By the end of March the company
had recorded 387,000 active customers and recently it announced that this number
had reached over 400,000.
TELEFONICA O2 EUROPE
ACCESSES
Unaudited figures (thousands)
2006 2007
March June September December March % Chg
Final Clients Accesses 36,267.9 36,886.0 37,564.5 38,310.9 38,866.0 7.2
Fixed telephony accesses (1) 2,876.6 2,726.1 2,598.3 2,462.9 2,347.8 (18.4)
Internet and data accesses 596.7 572.7 564.6 607.1 627.3 5.1
Narrowband 292.4 224.3 178.6 143.7 110.9 (62.1)
Broadband 291.8 335.9 373.9 451.9 505.2 73.1
Other 12.6 12.5 12.1 11.6 11.2 (11.3)
Cellular accesses 32,794.6 33,587.2 34,398.9 35,225.2 35,865.5 9.4
Contract 19,892.3 20,320.6 20,757.5 21,143.6 21,504.0 8.1
Prepaid 12,902.3 13,266.6 13,641.3 14,081.7 14,361.5 11.3
Pay TV 0.0 0.0 2.8 15.6 25.5 n.c.
Wholesale Accesses (2) 82.1 119.2 160.7 243.8 329.5 n.s.
Total Accesses 36,350.0 37,005.2 37,725.2 38,554.7 39,195.5 7.8
(1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's
accesses for internal use included.
(2) Includes Unbundled Lines by T. Deutschland.
Note: Cellular accesses, Fixed telephony accesses and Broadband accesses include MANX customers and Telefonica
Telecom.
TELEFONICA O2 EUROPE
CONSOLIDATED INCOME STATEMENT
Unaudited figures (Euros in millions)
January - March
2007 2006 % Chg
Revenues 3,534 2,409 46.7
Internal exp capitalized in fixed assets (1) 57 34 66.6
Operating expenses (2,659) (1,687) 57.6
Other net operating income (expense) 1 3 (50.4)
Gain (loss) on sale of fixed assets (0) (2) (97.0)
Impairment of goodwill and other assets 0 (1) c.s.
Operating income before D&A (OIBDA) 933 756 23.3
Depreciation and amortization (918) (683) 34.5
Operating income (OI) 15 73 (80.2)
Note: Figures are presented considering the Purchase Price Allocation of O2 as of February 2006.
Note: 'Bad debt provisions' have been reclassified from 'Other net operating income (expense)' to 'Operating expenses'.
Note: Telefonica O2 Europa includes in 2006 Telefonica O2 Czech Republic (January-December), T. Deutschland
(January-December) and O2 Group (February-December).
(1) Including work in process.
TELEFONICA O2 EUROPE
ACCESSES BY COUNTRIES
Unaudited figures (Thousands)
2006 2007
March June September December March % Chg
--------------------------------------------------------------------------------------------------------
UK
Final Clients Accesses 16,340.6 16,814.3 17,337.7 17,650.0 17,774.9 8.8
Internet and data accesses 0.0 0.0 0.0 16.8 24.0 n.c.
Narrowband 0.0 0.0 0.0 16.8 24.0 n.c.
Cellular accesses 16,340.6 16,814.3 17,337.7 17,633.2 17,750.9 8.6
Prepaid 10,654.4 10,940.5 11,255.8 11,415.1 11,452.9 7.5
Contract 5,686.2 5,873.8 6,081.9 6,218.1 6,298.0 10.8
Total Accesses 16,340.6 16,814.3 17,337.7 17,650.0 17,774.9 8.8
--------------------------------------------------------------------------------------------------------
GERMANY
Final Clients Accesses 10,099.0 10,335.3 10,628.7 11,043.8 11,215.2 11.1
Internet and data accesses 0.0 0.0 0.0 19.0 31.4 n.c.
Narrowband 0.0 0.0 0.0 19.0 31.4 n.c.
Cellular accesses 10,099.0 10,335.3 10,628.7 11,024.8 11,183.8 10.7
Prepaid 4,986.9 5,143.3 5,340.7 5,544.1 5,609.6 12.5
Contract 5,112.1 5,192.1 5,288.0 5,480.7 5,574.2 9.0
Wholesale Accesses (1) 11.1 40.0 75.3 149.3 227.4 n.m.
Total Accesses 10,110.1 10,375.3 10,704.0 11,193.1 11,442.6 13.2
--------------------------------------------------------------------------------------------------------
IRELAND
Cellular accesses 1,593.0 1,598.4 1,602.8 1,631.7 1,632.5 2.5
Prepaid 1,154.2 1,146.7 1,134.7 1,146.7 1,133.6 (1.8)
Contract 438.8 451.7 468.1 485.1 499.0 13.7
Total Accesses 1,593.0 1,598.4 1,602.8 1,631.7 1,632.5 2.5
--------------------------------------------------------------------------------------------------------
CZECH REPUBLIC
Final Clients Accesses 8,100.0 7,999.8 7,854.3 7,842.9 7,712.3 (4.8)
Fixed telephony accesses (2) 2,816.5 2,666.0 2,537.3 2,402.5 2,287.5 (18.8)
Internet and data accesses 588.4 563.6 554.6 560.3 559.9 (4.8)
Narrowband 292.4 224.3 178.6 143.7 110.9 (62.1)
Broadband 283.5 326.8 363.9 405.1 437.9 54.5
Other 12.6 12.5 12.1 11.6 11.2 (11.3)
Cellular accesses 4,695.0 4,770.2 4,759.7 4,864.5 4,839.5 3.1
Prepaid 3,051.8 3,043.1 2,978.3 2,989.7 2,873.2 (5.9)
Contract 1,643.2 1,727.1 1,781.3 1,874.8 1,966.3 19.7
Pay TV 0.0 0.0 2.8 15.6 25.5 n.c.
Wholesale Accesses 71.0 79.2 85.4 94.5 102.1 43.8
Total Accesses 8,171.0 8,079.0 7,939.8 7,937.4 7,814.4 (4.4)
--------------------------------------------------------------------------------------------------------
SLOVAKIA
Cellular accesses - - - - 386.8 n.c.
Prepaid - - - - 386.8 n.c.
Contract - - - - 0.0 n.c.
Total Accesses - - - - 386.8 n.c.
--------------------------------------------------------------------------------------------------------
(1) Includes Unbundled Lines by T. Deutschland.
(2) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's
accesses for internal use included.
TELEFONICA O2 EUROPE
SELECTED OPERATING DATA CELLULAR BUSINESS BY COUNTRIES
Unaudited figures
2006 2007
1Q 2Q 3Q 4Q 1Q % Chg Local Cur
---------------------------------------------------------------------------------------------
O2 UK
MOU (minutes) 162 169 175 180 179 10.6
ARPU (EUR) 32.3 33.1 34.0 34.1 33.3 0.8
Prepaid 16.8 17.3 17.9 18.2 17.0 (0.9)
Contract 61.6 62.7 63.9 63.5 63.2 0.2
Data ARPU 9.8 10.0 10.6 10.7 11.0 10.2
%non-P2PSMS over data revenues 12.5% 13.3% 13.1% 12.5% 13.4% 0.9 p.p.
---------------------------------------------------------------------------------------------
O2 GERMANY
MOU (minutes) 127 128 124 129 129 1.6
ARPU (EUR) 24.1 24.2 25.3 23.7 20.5 (14.8)
Prepaid 9.2 8.9 9.0 8.3 6.8 (25.7)
Contract 38.6 39.1 41.7 39.2 34.2 (11.2)
Data ARPU 5.9 5.4 5.8 5.9 5.1 (14.2)
%non-P2PSMS over data revenues 23.0% 21.5% 21.4% 22.6% 24.9% 1.9 p.p.
---------------------------------------------------------------------------------------------
O2 IRELAND
MOU (minutes) 220 237 241 246 240 9.1
ARPU (EUR) 44.6 45.8 45.2 45.0 44.2 (1.0)
Prepaid 28.9 29.4 29.8 29.6 28.0 (3.0)
Contract 87.1 88.2 83.5 81.4 82.0 (5.9)
Data ARPU 9.5 9.5 9.9 10.0 11.5 20.9
%non-P2PSMS over data revenues 13.8% 15.6% 18.4% 19.6% 19.9% 6.1 p.p.
---------------------------------------------------------------------------------------------
T. O2 CZECH REPUBLIC (1)
MOU (minutes) 96 102 102 109 109 13.5
ARPU (EUR) 17.1 17.9 18.3 18.8 17.7 1.2
Prepaid 7.9 8.4 8.6 8.8 8.3 2.7
Contract 34.8 34.8 34.9 35.0 32.2 (9.4)
Data ARPU 3.7 3.7 3.8 4.0 3.8 0.9
%non-P2PSMS over data revenues 39.1% 38.7% 43.0% 40.0% 41.0% 1.9 p.p.
---------------------------------------------------------------------------------------------
Note: MOU and ARPU calculated as monthly quarterly average.
(1) KPIs for cellular business in Czeck Republic do not include Eslovaquia.
TELEFONICA O2 EUROPE
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - March
2007 2006 % Chg % Chg Local Cur
-----------------------------------------------------------------------------------------------------------------------
O2 UK (1) Revenues 1,759 1,039 69.4 65.5
OIBDA 422 298 41.7 38.5
OIBDA margin 24.0% 28.7% (4.7 p.p.)
CapEx 181 156 16.0 13.3
-----------------------------------------------------------------------------------------------------------------------
O2 GERMANY (2) Revenues 843 577 46.1 46.1
OIBDA 161 131 23.6 23.6
OIBDA margin 19.1% 22.6% (3.5 p.p.)
CapEx 203 171 18.7 18.7
-----------------------------------------------------------------------------------------------------------------------
O2 IRELAND (1) Revenues 237 155 52.8 52.8
OIBDA 78 64 21.3 21.3
OIBDA margin 32.9% 41.4% (8.5 p.p.)
CapEx 49 25 97.6 97.6
-----------------------------------------------------------------------------------------------------------------------
TELEFONICA O2 CZECH REPUBLIC Revenues 539 515 4.7 2.6
OIBDA 251 252 (0.1) (2.1)
OIBDA margin 46.6% 48.9% (2.3 p.p.)
CapEx 29 34 (14.6) (16.3)
-----------------------------------------------------------------------------------------------------------------------
(1) In 2006 includes February-December period.
(2) In 2006 includes February-December period for O2 Germany and Telefonica Deutschland.
RESULTS BY REGIONAL BUSINESS UNITS
Others Companies
ATENTO GROUP
Revenues for the Atento Group reached 271 million euros during the first quarter
of the 2007 financial year, a growth of 6.3% when compared to the same period of
2006, as a result of the growth of the business activity.
With regards to revenue figures generated by external clients to the Telefonica
Group, these have increased 2.9 p.p. in relation to the first quarter of 2006,
reaching 48.3% by the end of March 2007.
The main clients who contributed to the growth of the Atento Group's revenues
were:
• Brazil: Increased activity of Speedy and Atento ao Cliente.
• Mexico: Higher sales from BBVA, particularly in Telecobranza and Finanzia
services due to higher management and improved attendance level.
• Venezuela: Significant growth in revenues with Movilnet due to one-off
negotiations on the billing of the available minutes generated by the
service. There has also been an increase in services from CANTV Group
through telesales campaigns and the entry of new financial clients such as
Econoinvest.
• Colombia: Growth in the operation with Microsoft due to the launch of new
products, increased traffic with Colpatria CAT, and a rise in operations
with ETB.
In terms of the geographic distribution of revenues, Brazil weighted 40.0% and
Spain 26.1% of the total, which combined represented 4.2 percentage points less
than in March 2006; Atento Mexico maintained a significant growth and achieved
11.3% of revenues compared with 9.1% in March 2006; Chile contributed 5.8%
compared to 5.9% in the previous year and Venezuela reached 3.9% compared to
3.2% in March 2006.
Operating costs presented a year-on-year growth of 6.5% totalling 236 million
euros, mainly as a consequence of the increase in personnel costs (+4.3%
year-on-year) in response to the Group's activity growth.
Operating income before depreciation and amortization (OIBDA) of the Atento
Group rose to 36 million euros, a year-on-year growth of 3.8% due to revenue
growth despite the impacts of higher costs of leasing and facilities
maintenance. In terms of profitability the OIBDA margin stood at 13.2%, 0.3
percentage points lower than the one registered at the end of March 2006. In
relation to OIBDA contribution, Atento Brazil represented 43.8% overall, with 16
million euros. Other operations registering high OIBDA contributions were Mexico
with 15.9% (6 million euros), Chile with 9.3% (3 million euros), Peru with 7.7%
(3 million euros), and Venezuela with 6.7% (2 million euros).
Cumulative operating income for March 2007 rose to 28 million euros, a
year-on-year growth of 3.8%.
Cumulative CapEx for March 2007 reached 3 million euros compared to 4 million
euros during the same period of the previous year, concentrated mainly in
Mexico, Brazil, Peru, Venezuela and Argentina.
Operating cash flow (OIBDA-Capex) presented a growth of 6.5% with respect to
that accumulated in March 2006, reaching 33 million euros as a result of the
ongoing progress of operating results and lower CapEx.
At an operational level, the Atento Group registered 49,130 positions in place
by the end of March 2007, 22.4% more than in 2006. The average number of
occupied positions for 2007 stands at 39,052. In terms of productivity, this
stood at 78.0%, a decrease of 2.2 percentage points in relation to March 2006.
ATENTO GROUP
CONSOLIDATED INCOME STATEMENT
Unaudited figures (Euros in millions)
January - March
2007 2006 % Chg
Revenues 271 255 6.3
Internal exp capitalized in fixed assets (1) 0 0 n.m.
Operating expenses (236) (221) 6.5
Other net operating income (expense) 0 0 n.m.
Gain (loss) on sale of fixed assets (0) 0 n.m.
Impairment of goodwill and other assets 0 0 n.m.
Operating income before D&A (OIBDA) 36 35 3.8
Depreciation and amortization (7) (7) 3.7
Operating income (OI) 28 27 3.8
(1) Including work in process.
ADDENDA
Key Holdings of the Telefonica Group detailed by regional business units
TELEFONICA GROUP TELEFONICA O2 EUROPE
% Part % Part
Telefonica Espana 100.00 O2 UK 100.00
Telefonica Moviles Espana 100.00 O2 Gemany 100.00
Telyco 100.00 O2 Ireland 100.00
Telefonica Telecomunic. Publicas 100.00 Manx 100.00
T. Soluciones de Informatica y 100.00 Airwave (1) 100.00
Comunicaciones de Espana Be 100.00
Iberbanda 51.00 Telefonica O2 Czech Republic (2) 69.41
Medi Telecom 32.18 (1) Airwave has been sold in April.
(2) Company owned through Telefonica S.A.
TELEFONICA LATINOAMERICA OTHER PARTICIPATIONS
% Part % Part
Telesp (1) 87.95 3G Mobile AG (Switzerland) 100.00
Telefonica del Peru 98.18 Endemol (1) 99.73
Telefonica de Argentina 98.03 Atento Group 91.35
TLD Puerto Rico 98.00 Group 3G (Germany) 57.20
Telefonica Chile 44.89 Mobipay Internacional 50.00
Telefonica Telecom 52.03 Tempos 21 (2) 43.69
Telefonica USA 100.00 IPSE 2000 (Italy) (2) 39.92
T. Intern. Wholesale Serv. (TIWS) (2) 100.00 Lycos Europe 32.10
Brasilcel (3) 50.00 Sogecable (3) 16.76
T. Moviles Argentina 100.00 Mobipay Espana (2) 13.36
T. Moviles Peru 98.53 Hispasat 13.23
T. Moviles Mexico 100.00 Portugal Telecom (4) 9.84
TM Chile 100.00 China Netcom Group (5) 5.00
T. Moviles El Salvador 99.08 BBVA 1.07
T. Moviles Guatemala 100.00 Amper 6.10
Telcel (Venezuela) 100.00 (1) Ownership held by Telefonica S.A. Endemol Holding NV
is the parent company of Endemol Group and owns 75% of
Endemol NV, company quoted in the Amsterdam Stock
Exchange.
T. Moviles Colombia 100.00 (2) Ownership indirectly held by Telefonica Moviles
Espana.
Otecel (Ecuador) 100.00 (3) Telefonica de Contenidos, S.A. holds 15.63% and
Telefonica, S.A. holds 1.13%.
T. Moviles Panama 99.99 (4) Telefonica Group's effective participation.
Telefonica Group participation would be 9.96% if we
exclude the minority interests.
T. Moviles Uruguay 100.00 (5) Ownership held by Telefonica Latinoamerica.
Telefonia Celular Nicaragua 100.00
Telefonica Moviles Chile 100.00
T. Moviles Soluciones y Aplicac. (Chile) 100.00
(1) Effective participation 88.01%.
(2) Telefonica, S.A. owns 92.51% y Telefonica DataCorp owns
7.49%.
(3) Joint Venture which fully consolidates the subsidiary
Vivo, S.A., through participation at Vivo Participacoes,
S.A. (62.94%)
ADDENDA
Significant Events
• On May 17th, 2006, Telefonica, S.A., will pay a final dividend of a fix
gross amount of 0.30 euros against 2006 profits, for each Company share
issued, in circulation and carrying entitlement to this dividend.
• The 14th of May, 2007, Telefonica, S.A. entered into an agreement for the
sale of its 99.7% stake in Endemol Investment Holding BV to a newly
incorporated vehicle.
The newly incorporated vehicle is jointly and equally owned by (i)
Mediacinco Cartera SL, a newly incorporated entity owned by Mediaset SpA and
its quoted subsidiary Gestevision Telecinco, S.A., (ii) Cyrte Fund II B.V.
and (iii) GS Capital Partners VI Fund, LP.
The total consideration for the sale of Endemol Holding amounts to 2,629
million euros for 75% of Endemol NV valued at 25 euros per share cum
dividend and including the additional assets and liabilities within Endemol
Holding and its subsidiaries.
As part of the agreement, the Consortium has committed to launch an
unconditional public offer for the remaining 25% of Endemol NV at a price at
least equal to 25 euros per share cum dividend, as soon as practicable after
closing of this transaction.
The agreement is subject to obtaining of the relevant regulatory
authorisations.
• On May 10th 2007, the Annual General Shareholders' Meeting of Telefonica
S.A., approved to reduce the share capital of the Company by 147,633,912
euros, by the redemption of 147,633,912 own shares.
• On April 28th, 2007, the Board of Directors of Pirelli, and Edizione
(Benetton Group), agreed to sell their stakes in Olimpia, principal
shareholder of Telecom Italia, to a consortium made up of Telefonica, the
group's industrial partner, the insurance company Generali, the banks
Mediobanca and Intesa Sanpaolo, and Benetton (partially reinvesting in the
consortium). The operation is subject to the mandatory authorisations. The
new consortium, in which Telefonica holds 42.3% of the shares, will have a
23.6% participation in Telecom Italia's ordinary capital (with voting
rights; 18% indirectly through Olimpia and 5.6% directly), thus becoming the
largest shareholder of the Italian operator. The other members of the
consortium have the following shareholdings: Generali (28.1%), Mediobanca
(10.7%), Intesa Sanpaolo (10.7%) and Benetton (8.2%). The new company starts
out with a capital structure of 5,145 million euros, representing a 2,314
million euro investment for Telefonica. An additional capital increase of
900 million euros is foreseen in which Telefonica will have the right to
subscribe for new shares on a pro-rata basis, in accordance with its current
participation. The agreement enables Telefonica to enter Telecom Italia's
Board with two members.
• On April 18th, 2007, Telefonica O2 Europe PLC, a 100% subsidiary of
Telefonica, S.A., and O2 Holdings LTD, a wholly owned company by Telefonica
O2 Europe PLC, signed a final binding agreement with Guardian Digital
Communications Limited, a company wholly owned by funds managed by the
MacQuarie Group, for the disposal of 100% of Airwave O2 LTD. The parties
agreed to complete the transaction on 20th April 2007. The total value of
Airwave O2 LTD (firm value) is 2,982 million euros (2,015 million British
pounds), generating total net proceeds for O2 Holdings LTD at completion of
2,860 million euros (1,932 million British pounds) after deducting Airwave
O2 LTD's net debt and other liabilities.
ADDENDA
Changes to the Perimeter and Accounting Criteria of Consolidation
In the period January-March of 2007, the main changes have occurred in the
consolidation perimeter were the following
TELEFONICA GROUP
• In March, Telefonica board of Directors approved the sale of 100% of the
Group stake in the British Company Airwave O2 Ltd. In the Telefonica Group's
consolidated financial statements as of 31st of March 2007, assets and
liabilities were reclassified in the captions 'Non current assets classified
as held for sale' and 'Liabilities associated with non current assets
classified as held for sale'.
OTHER COMPANIES
• The Spanish company Communicapital Gestion, S.A., affecting the
consolidation perimeter. The company, has been liquidated which was included
in the financial statements of Telefonica Group using the full integration
method, has been removed from the perimeter of consolidation.
• During the first quarter of 2007, the Telefonica Group sold shares in the
Italian company Ipse 2000 S.p.A. reducing its direct and indirect percentage
in the Italian company to 39.9158%. The company continues to be incorporated
in the consolidated financial statements of the Telefonica Group using the
equity method.
• Telefonica acquired 4,557 shares in the Dutch company Endemol Investment
Holding, B.V. throughout 2007. Following these purchases, the stake in the
share capital of this company has risen to 99.73%. The company continues to
be incorporated in the Telefonica Group consolidated statements using
statements using the full integration method.
• In February 2007 the company sold 100% of its stake in Endemol France to
the company Endemol, N.V., in which the Group has 75% participation. The
company continues to be incorporated in Telefonica Group financial
statements using the full integration method.
DISCLAIMER
This document contains statements that constitute forward looking statements in
its general meaning and within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements appear in a number of places in this
document and include statements regarding the intent, belief or current
expectations of the customer base, estimates regarding future growth in the
different business lines and the global business, market share, financial
results and other aspects of the activity and situation relating to the Company.
The forward-looking statements in this document can be identified, in some
instances, by the use of words such as 'expects', 'anticipates', 'intends',
'believes', and similar language or the negative thereof or by forward-looking
nature of discussions of strategy, plans or intentions.
Such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and other important factors that could cause
actual developments or results to differ materially from those expressed in our
forward looking statements.
Analysts and investors are cautioned not to place undue reliance on those
forward looking statements which speak only as of the date of this presentation.
Telefonica undertakes no obligation to release publicly the results of any
revisions to these forward looking statements which may be made to reflect
events and circumstances after the date of this presentation, including, without
limitation, changes in Telefonica's business or acquisition strategy or to
reflect the occurrence of unanticipated events. Analysts and investors are
encouraged to consult the Company's Annual Report as well as periodic filings
filed with the relevant Securities Markets Regulators, and in particular with
the Spanish Market Regulator.
The financial information contained in this document has been prepared under
International Financial Reporting Standards (IFRS). This financial information
is unaudited and, therefore, is subject to potential future modifications.
For additional information, please
contact.
Investor Relations
Gran Via, 28 - 28013 Madrid (Spain)
Phone number:
+34 91 584 4700
Fax number:
+34 91 531 9975
Email address:
Ezequiel Nieto -
ezequiel.nieto@telefonica.es
Diego Maus - dmaus@telefonica.es
Dolores Garcia - dgarcia@telefonica.es
Isabel Beltran - i.beltran@telefonica.es
ir@telefonica.es
www.telefonica.es/accionistaseinversores
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