30/08/2006


Until When will Cellular Operators lose money?

 

Note: Claro doesn't publish its revenue.

 

Vivo, Tim, Claro and Oi, main cellular operators in Brazil, presented debt in the 1st semester of 2006. This result is, most of the part, because of the investments done in the expansion of its networks and introduction of new tecnologies. Until when will these companies operate with debt?

 

EBITDA

 

The first step to evaluate operators incomes is measuring its operational result or EBITDA.

 

EBITDA is gotten deducting from the Taxes Revenue and Operational Costs. The following table demonstrates this calculation to Vivo:

 

R$ Million . Jan-June/06 Observations
Gross Revenue = 7,382 Revenue
Deductions - 2,207 Taxes and others
Net Revenue = 5,175  
Operational Costs - 4,152 Service Costs,
Commercialization, Administratives
EBITDA = 1,023 Earnings Before Interest, Taxes, Depreciation and Amortization

Note: This is one of the forms to calculate EBITDA.

 

Positive EBITDA means that the operator is with a Revenue bigger than its operational expenses ( positive flow register). Cellular Operators in Brazil presented positive EBITDA in the 1st Semester of 2006.

 

EBIT ( Earnings Before Interest and Taxes)

 

The next step is to consider the resources invested in the company that has to be amortized with the time (Depreciation and Amortization). It is called Depreciation the amortized cost of the tangible actives of the company, such as lands, buildings and equipments. It is called Amortization when it's reffered to intangible properties, as concessions and authorizations.

 

EBIT (Earnings Before Interest and Taxes) is gotten deducting from EBITDA the corresponding value to the depreciation and amortization. With exception of Telemig, the other cellular operators had presented negative EBIT in the 1st semester of 2006.

 

 

This means that Vivo, Tim, Claro and Oi aren't generating enough resources to amortize the investments already done.

 

This situation repeats itself to check the incomes (lost) of these companies. Net Income is gotten deducting from EBITDA the expenditures (revenues) financiers, expenditures (revenues) not operational, income tax and social contribution and the minority participation.

 

 

(Together)

 

The dynamics of the competition and the introduction of new technologies in the cellular compels these operators to always be investing, which prorogue to the future the possibility to get positive results.

 

The associated costs to the acquisition and retention of clients, leads to great subsidies and commissions of sale, helping to pressure the register with the maintenance costs of networks with raised geographic space.

 

The alternative model followed by Telemig takes down market share growth and loss, making the company to lose value in the long stated period.

 

Looking at the text above you could ask:

  • Until when will these Companies operate with debt? Or negative EBIT ?
  • Are the business models of the Operators self-sustainable? Which is the best alternative?
  • Could cellular's growth change this situation ?
  • What is the Operator's disposal to invest in 3G?
  • Can MVNO help the Operators to improve its Revenue?

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