Brasil Telecom profits drop 2.8% on financial losses, taxes

Brasil Telecom Participacoes (NYSE: BRP) posted on Tuesday profits of 117mn reais (US$40.9mn) for the third quarter of 2003, down 2.9% from 120mn reais in 3Q03, on higher financial costs and a tax payout. Financial costs rose 13.7% over the year, reaching 129mn reais, while taxes rose 35.8% to 106mn reais in the quarter, BRP said in its Q3 earnings release. Operating results, on the other hand, "contained no surprises," Credit Suisse First Boston analyst Andrew Campbell said in a report. Ebitda grew 11.7% compared to the 3Q02, reaching 960mn reais, mainly driven by a tariff increase granted in June. Ebitda margin was 46.7%. Gross revenues were 2.88bn reais, a growth of 13.2%, thanks to a boost in data communication services, which grew 34.3% year-on-year, to 191mn reais. Revenue from local service increased by 10.9%. The fixed line operating unit, Brasil Telecom, had a total of 10.7 million lines installed at end-September, up 1.3% from 3Q02. Broadband Internet access lines (ADSL) totaled 239,400, up 130% from 3Q03. Long distance revenues increased 7% in the period, but revenues dropped sharply for mobile-to-fixed long distance services, as a result of new regulations introduced in July allowing mobile customers to choose a long distance carrier. Brasil Telecom had a 100% market share within its region for mobile-to-fixed calls, and that share dropped to 50% by end-September. The company expects to recoup some of those losses in 2004 when it launches national and international long distance services, expected as soon as telecoms regulator Anatel confirms the company has met build-out goals, BRP chief executive Carla Cico said during a conference call to discuss the results. That same Anatel confirmation will also allow Brasil Telecom's mobile unit to launch services. The company has already spent US$60mn to install its GSM-based network in all state capitals within its concession region, in Brazil's central-west and south. The company has earmarked US$300mn for the network through 2005. "The strategy for the cellular operations are based on synergies with the fixed line operation," Cico said. The mobile unit is working on an assumption of 25% postpaid customers versus 75% prepaid and Cico said the goal would eventually be to achieve a 30:70 ratio. Third quarter results included for the first time the financial results from two recent Brasil Telecom acquisitions, Internet service provider (ISP) Ibest, and data communications provider GlobeNet. Ibest has a 20% market share for Internet access within Brasil Telecom's concession area, the company said. "Due to an increase in competition in the telecommunication sector, Brasil Telecom has been adopting strategies to 'protect' its customer base through the integrated offer of voice, data and Internet services," the earnings report said. Brasil Telecom has no concrete acquisition plans in 2004, "unless we find something positive for our position within the consolidation of the sector," Cico said, adding that she favors using the company's positive cash position for an 80mn reais shares buyback program, over new acquisitions.