Telefonica increased its full year revenue growth forecast due to factors including its focus on acquiring and retaining high-value customers and improved growth trends.

It now expects revenue to grow by around 2 per cent compared with its previous estimate of a 1 per cent increase. The company said its “improved earnings momentum” is being driven by its European operations, with Latin America performing consistently.

During the third quarter, Telefonica cited gains in key areas including LTE (4.9 million net additions), mobile contract customers (1.9 million), Ultra broadband (550,000) and pay TV (109,000). It said the commercial activity led to organic growth in “average revenue per access” of 3.5 per cent year-on-year, while churn remained stable.

It said its total access base was 356.3 million, including 270.7 million mobile accounts.

The company reported a profit of €1.1 billion, up 35.8 per cent, on revenue of €11.7 billion, down 8.3 per cent. Revenue grew 2.7 per cent on an organic basis, with a 1.2 per cent increase in service revenue and 20.7 per cent rise in handset sales.

Its earnings were impacted by familiar factors including depreciation of foreign currencies against the euro, in particular with the Brazilian real and Argentine peso. The implementation of new accounting standards also had a small impact.

Operating income before depreciation and amortisation was down 1.4 per cent to €4 billion, as positive factors such as an additional favourable court ruling in Brazil and gains from the sale of tower and digital assets were offset by contingencies related to Telefonica Brazil, hyperinflation adjustment in Argentina and restructuring costs.

Telefonica said revenue from “services beyond connectivity” continued increasing, to account for 14 per cent of group revenue (up 1 percentage point) year-on-year. This included sales in areas such as video, managed M2M services and security propositions.

Market highlights
For its home market of Spain, Telefonica cited “excellent commercial activity” with “record figures in fixed and mobile portability, the highest mobile contract additions in ten years and the highest fixed broadband net additions since the Fusion [bundled service] launch”.

Revenue in the unit was flat at €3.2 billion, with stable service revenue (impacted by termination rate cuts and the loss of a wholesale deal with Yoigo/Pepephone) and higher handset sales.

In Germany, revenue fell 1.1 per cent to €1.8 billion, with mobile revenue impacted by factors including a reduction in roaming income: excluding regulation, this would have remained stable. Fixed revenue was impacted by the migration of wholesale DSL customers ahead of the shutdown of legacy infrastructure and a higher share of customers with bundles.

With speculation about the status of a potential listing of its UK business rumbling on, Telefonica said the unit “delivered another strong set of results, growing key metrics again in the third quarter of 2018”.

Revenue of €1.7 billion was up 7.4 per cent year-on-year, driven by strong handset sales, along with the launch of “custom plans” and increases in airtime rates. While mobile service revenue decreased on a reported basis, there was organic growth from higher average subscriptions and continuing MVNO growth.

Telefonica Brasil’s reported revenue declined 20.1 per cent to €2.3 billion, with factors cited including a deterioration of the macroeconomic environment and regulatory impact. Mobile service revenue decreased 20.9 per cent to €1.4 billion, although with a drop of 1 per cent on an organic basis the company said it is “worth highlighting” the strong performance of contract services almost offset weakness in prepaid.

Moving to Telefonica Hispam Sur (primarily Argentina, Chile and Peru), revenue decreased 32.3 per cent to €1.3 billion, the lion’s share of which can be laid at Telefonica Argentina’s door (where revenue was down 71.3 per cent to €232 million). On an organic basis, the picture was better, with revenue up 11.2 per cent as a decrease in mobile customer base was accompanied by an increase in quality, with contract and LTE accounts increasing in share of the mix.

Finally, revenue at Telefonica Hispam Norte (Colombia, Mexico, Ecuador, Venezuela and other central American units) was essentially flat at €1 billion, with weakness in Mexico offset by strength elsewhere. Mexico has been impacted by negative regulatory impacts and increased competition in the market, although Telefonica said the commercial performance had improved since the launch of new offers in July.