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Section: Teleco English

05/12/2006

 

Cellular Operators continue on debt

 

The main cellular operators in Brazil had positive EBTIDA in the first 9 months of 2006. EBITIDA is the profit before the discount of tax, depreciation and amortization. A positive EBITIDA means that the operator has more revenue than operational expenses.

 

 

Note: Claro doesn't publish Profits

 

Despite positive EBITIDA, EBITIDA margin ( EBITIDA/ Net Revenue) of these operators is low when it compared to international standards. The exception is Telemig Celular that opted for a strategy of low growth of the client's base to keep its income.

 

In the first 9 months of 2006 EBITIDA Margen of América Móvil, Claro's controller, was 36.8% and Telefonica Móviles 34.7%. These margins are supported by the operations in the matrices where have, respectively, EBITIDA margins 51.0% and 45.5%.

 

 

R$ Thousands
(Jan-Sept/06)
EBITDA Margin
EBITDA
EBIT
Net Profit
Vivo
21.7%
1,739
(95)
(867)
Tim
23.5%
1,695
7
(380)
Claro
13.5%
736
(469)
nd
Oi
13.6%
345
(144)
(73)
Telemig
31.7%
270
128
85

 

The indicators could change according with the countable criteria. Tim, for example, just presented positive EBIT because it has changed its countable politics of subsidy of devices, granting them in 12 months (more details).

 

With low EBITIDA Margin these operators can't produce enough resources to pay the investments and EBIT keeps negative. EBIT is the EBITIDA discounting the expenses of depreciation and amortization of investments. The debt is even stronger when its considered net profit gotten after discounting from EBIT the taxes and other expenses.

 

This situation is the same of the two quarters of 2006, analyzed in the commentary Until When will Cellular Operators lose money ?

 

In the comparison of the first 9 months of 2006 with the same period of 2005 is possible to observe a EBTIDA margin's improvement of Tim and Claro and worsening in the others.

 

 

 

EBITDA Margin
Jan-Sept/05
Jan-Sept/06
Vivo
28.7%
21.7%
Tim
16.1%
23.5%
Claro
-2.6%
13.5%
Oi
17.9%
13.6%
Telemig Celular
38.9%
31.7%

 

To increase the numbers searching for the clients's base growth and revenue has been the strategy of Tim and Claro to improve their income, privileging the conquest of good clients of the base of other operators. In a country with the geographic extension of Brazil, that demand networks of more than 10 thousand ERBs to reach national covering, it's necessary a bigger volume of clients to keep costs of maintenance and investments in the expansion and introduction of new technologies.

 

The growth can't happen, however, at any price, because of a increase in the costs that can harm the income. OI, for example, presented decrease in the EBITIDA margin, although have been the operator with bigger growth in revenue between the operators of the following table.

 

Net Revenue
R$ Thousands
Jan-Sept/05
Jan-Sept/06
Growth
Vivo
8,267
8,000
-3%
Tim
5,990
7,198
20%
Claro
4,679
5,441
16%
Oi
1,980
2,534
28%
Telemig Celular
845
853
1%

 

The way of the Income passes for increase the revenue to a bigger tax that the operational costs.

 

In a competitive market as brazilian, it will be winner who grow with lesser costs of acquisition and clients retention, It could be reached having a improvement of the brand, lesser churn and using alternative distribution channels as the ones giving by virtual mobile operators (MVNOs).

 

Finally it is important to remember that showing a positive ner profit it's not the only way of generate value to the shareholders of these companies. The market value of the cellular companies, for example Tim, is bigger than fixed telephony companies that present better indicators of income.

 

According to the text above you could ask:

  • Are the cellular operators in Brazil improving their income? Until when this is a priority of the shareholders in the actual situation of the brazilian market of cellular?
  • Could the consolidation of the cellular operators in Brazil reduce the competition and decelerate the growth of cellular in Brazil? Which groups between those that work in the brazilian market of cellular would be benefited with this situation?
  • In a short time, to invest in 3G will increase or decrease the income of the operattors?
  • In a situation of consolidations Anatel should give priority to the MVNO?
  • With the numerical portable will affect the competitive situation?

 

 

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