03/31/2010


Oi's dilemmas for 2010

 

 

Oi lost market share in fixed telephony, fixed broadband and cellulars in the 2nd semester of 2009.

 

 

 

In mobile accesses, Oi's growth was concentrated in São Paulo (Region III). Inside the its region of origin (Region I) and in BrT's region (Region II) Oi lost market share.

 

 

 

 

As a result from this situation, Oi had 0.2% drop in its net revenue in 2009. The fall wasn't bigger due to the growth of 16.5% in the in the mobile gross revenue (due to its entrance in São Paulo) and the 17.9% increase in the data communication revenue. The gross revenue of fixed telephony (without data) which represents 59% of the total revenue fell 3.5% in 2009.

 

 

R$ millions 2008 2009
Gross Revenue
43,962
45,708
4.0%*
Net Revenue
29,947
29,882
-0.2%
EBITDA
10,011
7,315
-26.9%
EBITDA Margin
33.4%
24.5%
-8.9 p.p.
EBIT
5,099
1,610
-68.4%
EBIT Margin
17%
5.4%
-11.6 p.p.
Net Profit
1,087
(436)
-140%
Investments
5,930
5,108
-24.5%
Net Debt
12,351
21,889
77.2%

* The 4% growth in gross revenue was impacted by the change in the accounting rules of this revenue and the discounts in Region II.

 

The operator presented strong fall in its profitability in 2009 with reduction in EBITDA and EBIT margins and loss of R$ 436 million. The main cause for this drop were the costs of R$ 2.5 billion due to:

  • R$ 0.9 billion for expenditures related to the merger process between Oi and BrT, amortization of deferred grants for postpaid devices and other expenses.
  • R$ 1.6 billion increase of the contingency provision for legal actions of minorities

Without these expenses Oi's EBITDA margin would have reached 33%. In other words, after this year (focused in the consolidation with BrT) and having "finished the year with the process of operational integration between both companies almost concluded", Oi would be in conditions to recover its profitability in 2010. So even having the loss, the company plans to distribute R$ 1.2 billion in dividends to shareholders.

 

Oi is likely to repeat in 1Q09 the low growth gotten in the 2nd semester of 2009. Its mobile market share dropped from 20.73% in Dec/09 to 20.56% in Feb/10. The question is to know is this trend will be extended for the rest of the year.

 

A low growth strategy can help to improve Oi's profitability and reduce the debt, but by that the operator will lose space in the Brazilian market. Kept the current trends, Oi is likely to lose in 2010 the leadership in market share inside the Region I to Vivo.

 

Oi has conditions to increase its investments in 2010. Despite been high, Oi's gross debt is mostly long-term (71.4%) and in national currency (80.7%, been R$ 6.6 billion with BNDES and R$ 6.1 billion in public debentures. The relation net debt/EBITDA reached 3.0 in 2009 (2.3 without non-recurring expenses).

 

In order to stop losing market share in broadband and in mobile accesses, Oi must to invest to improve service quality and improve the capacity of its network.

 

Oi is today "the biggest telecommunications integrated company in Brazil". However, Oi can be surpassed by the other operators if it doesn't invest in its network modernization (optical fiber accesses, NGN,...) so offering high speed broadband with low prices.

 

 

You could ask:

  • Will Oi increase its investments in 2010?
  • Will Oi focus growth or profitability in 2010?
  • Will Vivo reach the cellular leadership inside the Region I in 2010?
  • Will São Paulo market (Region III) make the difference for Oi in 2010?

 

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Note: The opinions expressed in the published articles in this section are their authors' responsibility.

 

 

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