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Foreign acquisitions helped boost second-quarter profits at Telefonos de Mexico by 42 per cent, but not enough to offset eroding domestic earnings.

Telmex, owned by Mexican billionaire Carlos Slim, reported late on Tuesday a net profit of 6.53bn pesos ($606m) for the April-June period with profit margins rising to 16.3 per cent from 14.5 per cent. Earnings before interest, taxes, depreciation and amortisation (ebitda) rose 8 per cent to 16.9bn pesos, and operating profit was 9 per cent higher at 10.9bn pesos. Higher costs, however, ate into its ebitda margin, which slipped to 42.3 per cent from 49.6 per cent in the second quarter of 2004, and its operating margin declined to 27.3 per cent from 31.8 per cent.

The company has used its dominance in Mexico's fixed-line business to fund an acquisitions spree in Argentina, Brazil, Chile, Colombia and Peru countries all seeing increased sales. Mr Slim's America Movil operates Mexico's main Telcel mobile phone company and has also been snapping up Latin American telecoms.

Telmex shares fell 1.7 per cent to 10.25 pesos, reflecting rising costs and slipping business at home. “The thrust of the Telmex story continues to be slow, but apparently inexorable, revenue decline in the core incumbent businesses in Mexico, compensated partly by growth of broadband and other data revenue,” wrote UBS analysts Stephen Graham and Pedro Gonzalez.

Telmex posted second-quarter sales of 40.2bn pesos, up 26.7 per cent from the same period last year, after including the operations of Brazil's Embratel, purchased last year and consolidated in the third quarter. Embratel has been losing share in long-distance and data markets.

However, domestic sales in Mexico declined 4 per cent over the past year to 29.9bn pesos, as increased data services failed to make up for lower voice traffic. During the quarter, Telmex added 316,000 new lines in its home market, where its 17.9m lines saw a 6 per cent drop in local calling revenue. Domestic long-distance sales fell 1 per cent and international calls fell 7 per cent.

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