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Last updated: May 12, 2006 2:05 pm

Telefónica boosted by deals in Europe

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European acquisitions and customer growth in Latin America has helped Spain’s Telefónica to post a 40 per cent year-on-year increase in first-quarter net profits, to €1.27bn.

The company, among the world’s largest telecommunications operators, said on Friday consolidated group revenues climbed 45 per cent, to €12.04bn. Of these, nearly €2.5bn came from Telefónica O2 Europe, which brings together businesses acquired or consolidated by the Spanish group since the end of the 2005 first quarter.

The company said that on a strictly comparable basis, sales growth was 8.9 per cent and operating income ahead 6.2 per cent. Operating margins suffered a deterioration of 2.3 points, to 38.9 per cent.

Telefónica late last year paid €26bn for 02, the UK’s second biggest mobile telephony operator, in a deal which consolidated an emerging strategy aimed at diversifying the geographical profile of the company, which is built on Spain and Latin America. With its relatively low rates of fixed-line and internet penetration, Latin America remains an important growth driver at the group.

Non-wireless revenue from the region surged 30 per cent year-on-year, to €2.32bn in the first quarter. Telefónica Moviles, meanwhile, reported a 17.7 per cent rise, to €4.33bn, in first quarter revenues, thanks to new customers and favourable currency movements in Latin America.

The acquisition of 02, the UK’s second mobile operator, followed the purchase of a controlling stake in Cesky Telecom after Telefónica won a privatisation contest in the Czech Republic. The company remains keen to build its European business, though a scarcity of acquisition opportunities, coupled with a stretched balance sheet, makes a big deal unlikely in the short term.

The company said on Friday total customer connections had climbed 42 per cent on the year-ago stage, with mobile access up 61 per cent to 131m. This includes the 33m customers incorporated through 02, and 4.7m from Cesky. The shares slid nearly 1 per cent in a market affected by heavy falls yesterday on Wall Street.

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