Austerity has already pushed Spain into a recession and is now
putting pressure on the country's biggest stocks. But while Latin
America has a much more vibrant economic environment, some are
worrying that Telefonica (
) could face political trouble there.
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caption="TLAB denies putting little people into its access
Friday's numbers from TEF were anything but great, and the
shares plunged 3.5% as investors dumped their disappointment ahead
of what many fear will be worse performance ahead.
An 11% decline in revenue from Spain is steep by telecom
standards, but in combination with a broader 6.6% decrease in
subscriber fees from nearby markets -- including Portugal and Italy
-- conditions in Europe look pretty bad.
Emerging markets traders, of course, know that TEF is really
about Brazil, Argentina, and its other operations in Latin America.
This side of the Telefonica empire accounts for close to 50% of the
company's overall revenue and has historically grown faster than
the relatively mature Spanish business.
That growth came through for TEF last quarter. At this rate,
Latin America will probably account for more than half of the
company next quarter if it doesn't already.
Here, the issue is how TEF can grow in Brazil, where the number
of active cell phone accounts currently outnumbers the human
population by over 20%.
TEF already has 74 million mobile accounts in its market-leading
Vivo network and another 16 million fixed line subscribers in
Brazil, or about 40% of the population.
While it expanded its overall network penetration by 16% --
nearly 13 million people -- over the last year, it's just not clear
how long it can keep signing accounts at a rate of about 1 million
a month before running out of customers.
) -- and maybe even local underdog
) -- to fight aggressively to keep their share in the meantime.
One ray of sunshine: while there's been a lot of talk over
whether Argentina may nationalize TEF's local holdings, the company
does not expect to meet the same fate as Spanish oil company Repsol
), which recently
its Argentine subsidiary
Even if it does, it turns out that Argentina only accounts for
5% of TEF's global revenue. Compared to a bad quarter or two in
Europe if the recession deepens, that may look less like disaster
than collateral damage.