05/03/2011


What will Oi's strategy be in order to increase revenue in 2011?

 

Oi's gross revenue in the first quarter of 2011 (1Q11) reached 5.6% what was smaller than the figure registered in 1Q10. The fall happened mainly in voice revenue in fixed telephony (11.0% or R$ 645 million).

 

 

 

 

The operator isn't making up for the drop in this revenue by growing in other segments. The only revenue to present significative growth in the period was mobile data (18.5%). Mobile voice increased 1.5% and fixed data didn't grow (0.0%).

 

The importance of voice revenue comes from the fact that it represents 53.6% of Oi's revenue (1Q11).

 

 

 

 

One of the factors affecting voice revenue in fixed telephony is the fierce competition in mobile telephony, with more aggressive promotions. Oi's local traffic (72% if the revenue is VC1 Fixed-Mobile), long distance and TUP revenues presented in 1Q11 a reduction of more than 15% over 1Q10.

 

 

Gross Revenue (R$ million)
1Q11
Growth 1Q11/1Q10
Subscription 2,642
-4.9%
Local Trafic 1,237
-16.8%
Long Distance 1,280
-17.5%
TUP (public telephones) 120
-27.2%
Interconnection 230
-3.7%
Additional services/0800 333
-4.3%
Voice revenue in fixed tel. 5,841
-11.0%

 

 

These three segments (local traffic, long distance and TUP) count R$ 2.6 billion in 1Q11, more than the R$2.2 billion of mobile voice, which grew only 1.5% in the period.

 

Other factor corroding Oi's fixed voice revenue is the drop in subscription revenue (-4.9%) which represents 45% of the voice revenue in fixed telephony.

 

 

 

 

The drop in subscription revenue is directly proportional to the fall in the number of single accesses in fixed telephony (6.5% in 1Q11/1Q10).

 

 

 

 

The drop in the number of Oi's fixed accesses occurs mainly due to the migration of clients to other operators attracted by offers with more advantages in packages with broadband and/or pay TV (GVT and Net) or with restrict mobility (Embratel's "Livre").

 

Only 22.6% of the Oi's fixed telephony clients have also fixed broadband. At Net, in 2010, 75% of the clients had packages supplying with these three services.

 

In order to keep these clients Oi will have to invest in networks for broadband access based in fiber, offering packages competitive in price and speed.

 

In 1Q11, the average speed of Oi's fixed broadband (Velox) hit 1.9 Mbps. Among its 4.5 million accesses, 14% had speed equal or superior to 4 Mbps (632 thousand accesses). It's not a lot it compared to GVT that had 1 million fixed broadband accesses in 2010, all of them with speed equal or superior to 5 Mbps.

 

Besides keeping its clients of fixed telephony, Oi needs to increase in fixed and mobile broadband to make up for the drop in voice revenue. The company got back to the growth track in fixed broadband in 1Q11 with net adds of 159 thousand accesses, but this addition is still smaller than what was presented by Telefonica and Net over the last quarters.

 

 

 

 

In mobile broadband (3G), Oi ended 1QT11 with 420 thousand modem users and 246 thousand data packages in mobile phones. The total of clients increased 6.7% in the quarter, and 36.5% over the last 12 months. These numbers are still small in face of the company's potential. It has 6.2% of the market share in data terminals and 3.5% in accesses via 3G handsets. The carrier is in the 4th position in 3G coverage (211 covered cities) against 1,353 thousand from Vivo.

 

If Oi doesn't get to invert this trend of fall in revenue, the operator is likely to continue to lose profitability. The operator's EBITDA margin in 1Q11 reached 28.6% and EBIT 7.6%.

 

 

 

 

 

You could ask:

  • What will Oi's strategy be in 2011?
  • Will this strategy accelerate mobile and broadband growth?
  • Will it stop the loss in fixed telephony?
  • How to invert the trend for drop in revenue and improve profitability?
  • What will Portugal Telecom's role in the definition of a strategy for 2011?

 

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

 

 

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