On Dec 27, 2013, we upgraded the largest Brazilian telecom
), to Neutral from Underperform.
Why the Upgrade?
We believe that the company's focus on higher growth areas like
data transmission and video services will deliver decent growth
in the future. Further, the company's bundled offering is gaining
a competitive position and thus expanding its market share.
Telefonica Brasil's long-term opportunity in mobile business
remains attractive. Moreover, the company intends to continue
being a launchpad for attractive post-paid and prepaid data
plans. These plans are expected to help Telefonica Brasil to hold
on to its leadership position in both data and post-paid
The company is planning to deploy a nationwide 4G network and has
accordingly signed a deal with Ceragon. Vivo is also focusing on
areas with higher growth potential like data transmission and
video services, which are believed to be accretive over the long
Telefonica's fixed-line business is expected to benefit from the
expansion of video, broadband Internet and Pay TV services. We
believe the expansion in IPTV services coupled with DTH offering
would drive growth in its fixed-line business. Further,
Telefonica Brasil's Speedy (offering top speeds of 30 Mbps) and
FTTH networks of 100 Mbps will continue to enhance its
However, fixed-line voice business is being exposed to
competition from alternative services including wireless
telephony, VoIP (voice over Internet Protocol) and cable services
(voice, video and broadband).
Additionally, Vivo's wireless business is struggling due to
saturation in the Brazilian wireless market and stiff competition
from its biggest rival
America Movil S.A.B. de C.V.
) Claro unit. Depreciation of the Brazilian real also remains a
concern and forces us to maintain a balanced view on the stock.
Telefonica Brasil currently carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Companies operating within the telecommunication sector that are
worth taking note of include
Hawaiian Telcom Holdco Inc.
Chungwa Telecom Company Ltd
). HCOM carries a Zacks Rank #1 (Strong Buy) while CHT currently
holds a Zacks Rank #2 (Buy).
AMER MOVIL-ADR (AMX): Free Stock Analysis
CHUNGHWA TELECM (CHT): Free Stock Analysis
HAWAIIAN TELCOM (HCOM): Free Stock Analysis
TELEF BRASIL SA (VIV): Free Stock Analysis
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