Telefonica Pay-TV Clients Down in Spain, but Revenues Up

Giant European telecom pushes ‘higher-value’ TV in home market, Brazil posts ‘stellar’ results, per Telefonica

Telefonica’s pay-TV subscriber numbers in Spain took a small if increased hit in this year’s third quarter, according to financial results announced Thursday in Madrid.

But Europe’s biggest telecom in revenue terms remained rather  “optimistic” about its TV business going forward, Telefonica Chairman-CEO Jose-Maria Alvarez Pallete and Chief Financial Officer Angel Vila said in conference call with analysts.

Telefonica’s TV clients, which stood at 3.76 million on June 30, declined by 44,000 subscribers from July to September. The slide compares to a drop of 12,000 in the same quarter last year.

Vila put the loss down to three factors. Subscription numbers were hit by price increases in the basic packages of Movistar Fusion Plus as well as hiked rates for one-play TV offer in September, which increased from €22 to €25. Telefonica also lost customers as it migrated them from satellite platform to broadband delivery, he added.

But revenues from Telefonica’s Fusion triple-play offer of TV, internet and telephony rose 23% year-on-year, as subscribers paid significantly more for Fusion: €81.80 ($89.10) a month, up from €73.80 ($80.40) at the same time last year, said Alvarez Pallete said.

While operating by far the biggest pay-TV business in Spain, Telefonica, like rivals including Netflix, is still operating on half-gas. Sports, especially soccer, certainly drive subscription takeup. Telefonica is also betting on original TV series to reduce churn. But the impact of that on Telefonica’s bottom line will only be seen when its anticipated original TV series begin to air from September 2017. Netflix to date has ordered just one series in Spain.

Pessimists had feared content costs would dent Telefonica’s performance in Spain. That, for the moment, has not happened. Thanks to an early-retirement program for employees, third-quarter costs in Spain remained stable, down just o.3% compared to 2015 –  a creditable performance given Telefonica has had to assume the increased costs of new La Liga and Champions League soccer seasons, which kicked in from mid-August.

In Latin America, Telefonica’s IPTV contracts grew 39% year-on-year as the company pushes its data services. Pay-TV  contracts in Spanish-speaking America rose 7% compared to the first nine months of last year, with the biggest pay-TV adds in Colombia (up 13%) and Peru (up 10%).

Overall, Telefonica reported January-through-September global sales of €38.315 billion ($41.8 billion), down 6.7% due to a sale of half a 5% stake in China Unicorn, but up o.2% in terms of organic growth. Driven by Brazil and Spain, operating profits for January through September came in at €11.931 billion ($13.0 billion), 4.6% up in organic terms, and outperforming analysts’ forecasts.

For investors, Telefonica’s headline revelation Thursday was that it would reduce dividend payouts from a promised €0.75 per share to €0.55 for 2016 and €0.40 in 2017 as, carrying debt of €49.9 billion ($54.4 billion) it seeks to maintain its current investment grade credit rating.

Looking to grow its profits and cash flow, Telefonica did not require  any further divestment of assets, Alvarez Pallete said.

Where that would leave Telefonica’s imminent sale, according to some press reports, of Argentina’s Telefe, the country’s biggest free-to-air broadcaster, is another question.

Telefonica’s shares fell 3.5% in morning trading on the back of the dividend-cut announcement.

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