Tags: Telecom | Argentina | risk | TEO

Telecom Argentina: Growth, but also Risk

By    |   Thursday, 29 Dec 2011 02:51 PM

Telecom Argentina (TEO) is a leading communications provider in Argentina, a market with growth potential and risk. The country is known for economic and policy shifts that can cut revenue.

Telecom, which trades in the United States as American Depositary Receipts (ADRs), is controlled by Telecom Italia (TI), which in March boosted its stake in Sofora, a holding company for Telecom, to 68 percent from 58 percent.

Telecom is seeking revenue growth through value-added services as it becomes harder to snare new customers amid rising competition in a saturated market.

The strategy has worked. In nine-month earnings, Telecom said that while telephone services were stable at 4.1 million lines, broadband and cellular surged. Mobile hit a record 19.9 subscribers, rising by 3.7 million year on year.

Of them, 90 percent are in Argentina and the rest in Paraguay. It also added 175,000 broadband customers to reach 1.5 million.

Revenue hit 13.4 billion pesos ($3.1 billion) in the first nine months of 2011, up 28 percent year over year. Net income was 1.8 billion pesos, up 39 percent. Also noteworthy, the company said its 146 million peso debt can be settled out of cash flow, which was 1.7 billion pesos on Sept. 30, 2011.

Added value

Telecom may have to be nimbler in 2012. The Argentine economy is due to slow to 4 percent growth from an 8 percent average between 2003 and 2011, according to estimates. Add in high inflation — private economists pegged it at 25 percent annually in 2011 — and consumer demand could weaken, prompting deeper discounts by Telecom.

Another flag is mobile number portability. The regulation, taking effect in 2012, allows people to keep numbers when switching to other mobile providers, an incentive for carrier-hopping.

Telecom is investing to expand 3G technology coverage and bandwidth capacity for mobile data transmission, a move aimed at keeping clients and building revenue from value-added services. These made up 47 percent of its mobile sales in the January-September period.

For broadband growth, it launched video on demand in October 2011, allowing customers to watch movies and other content on computers and TVs.

Can Telecom keep up the growth? Analysts seem to think so. Of six on NASDAQ OMX, four have buy recommendations and two have holds.

The company is due to next report on Feb. 24.

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Telecom Argentina (TEO) is a leading communications provider in Argentina, a market with growth potential and risk. The country is known for economic and policy shifts that can cut revenue. Telecom, which trades in the United States as American Depositary Receipts (ADRs),...
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Thursday, 29 Dec 2011 02:51 PM
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