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European telcos seen resilient, not immune to crisis

European telcos' first-quarter earnings should confirm the overall resilience of the sector, as its ability to generate cash ensures it is less hard-hit than others by the global economic slowdown.

However, analysts note that some of the major integrated operators aren't immune to the deteriorating economic environment, as consumers reduce spending and growth in emerging markets slows.

European telcos' outlook for 2009 is expected to remain conservative, with further cost cutting also possible. Analysts view France Telecom, KPN and Telecom Italia as the sector picks, as they look set to enjoy more sustainable returns than structural laggards BT Group PLC and Deutsche Telekom AG.

Last week, Deutsche Telekom became the first European telecoms company to issue a profit warning due to the economic slump, undermining the sector's defensive reputation and dragging down telecoms stocks around the region. Deutsche Telekom will release a full set of results May 7, but key guidance was included in the profit warning, which largely stemmed from the underperformance of its T-Mobile unit in the U.S. and the U.K.

As fixed-line revenue stalls or declines, analysts note that several mobile markets, including the U.K., have also experienced a sharp increase in competition. The mobile market deterioration is attributable to a combination of signifcant revenue declines, partly due to regulation, and a rise in sales and marketing spend, creating a margin squeeze effect.

"We cannot rule out the possibility of other major markets undergoing a deterioration of their trends, which lowers visibility on the sector," analysts at Oddo Securities wrote in a recent note.

KPN - 27 April
Market Expectations: Analysts widely see KPN as a winner among telecoms stocks, and expect the firm to report a 10% rise in net profit, mainly due to a robust performance at its German E-Plus mobile business. Earlier this month, KPN confirmed its full year 2010 targets for revenue of EUR15 billion and Ebitda of EUR5.5 billion, and said it expects in 2009 to take "an important step" toward these targets.

Analysts praise the proactive way KPN deals with upcoming difficulties. In the past month, it announced 1,400 job cuts at its Getronics unit to weather the economic slowdown, and also injected up to EUR390 million into its pension funds.

Main Focus: Analysts are looking for further details on KPN's outlook. They are also watching the impact of the sale of several Getronics units. Another area of interest is KPN's cash flow, as lower income from real estate disposals could be offset by gains from a new tax stimulus plan from the Dutch government. Some analysts expect KPN to announce a new EUR1 billion share buy-back, after the firm completes its current EUR1.50 billion bonds issue program.

France Telecom SA - 29 April
Market Expectations: First quarter sales are expected to be slightly weaker due to further macroeconomic deceleration. Ebitda is expected to be dragged down by currency fluctuations, especially the appreciation of the euro versus the Polish zloty and British sterling.

France Telecom is expected to weather economic pressure in France but results in Spain, the U.K. and Poland are likely to highlight pressure from competition, as well as slowing demand. Still, the group is expected to confirm its 2009 free cash flow target.

Main Focus: The company already provided details on dividend policy and guidance at its 2008 earnings release. Analysts will eye general comments on the market environment, with some concerned that the French market could be getting tougher and African growth may be slowing.

France Telecom may also provide an update on its legal battle with Orascom Telecom Holding over their stakes in Egyptian mobile phone operator Mobinil.

Telecom Italia - 7 May
Market Expectations: Domestic Ebitda is expected to stabilize on softer regulation, while in Brazil the top line should remain weak, as will European broadband. Slowing domestic Ebitda, hurt by a slowdown in content revenue, calendar effects and fixed-mobile reorganization should be partially offset by a monthly retail fee increase in February. Brazil is expected to be weak at the top line.

Main Focus: The market will look for updates on asset disposals, including German broadband unit Hansenet, for which both Telefonica and Vodafone have expressed interest. Updates are also expected on a legal battle in Argentina that may push Telecom Italia to consider exiting the country.

Telefonica SA - 13 May
Market Expectations: Analysts say Telefonica is still fairly well positioned compared with other European peers, despite a tougher operating environment in its home Spanish market. The company is likely to see a decline in mobile revenue and high speed Internet net adds in Spain as a consumer spending slowdown deepens and population growth subsides.

Latin America is still Telefonica's bright spot and the company continues to add clients in the region and sell more Internet and pay TV packages. Telefonica's European 02 operations are also faring better than in past quarters in key markets like the U.K. and Germany.

Main Focus: Telefonica has been forced to lower tariffs to avoid line loss as its customers become increasingly sensitive to pricing amid the recession and rising unemployment in Spain. Market observers will be watching how much these developments impact revenue, and if Latin American operations begin to show weakness this quarter.

BT Group - 14 May
Market Expectations: BT looks set to report an over 2% rise in revenue for the fourth quarter but profits are expected to be sharply lower as a result of burgeoning costs at the company's global services unit. The company is expected to slash its dividend as continuing problems at global services hurt cashflow.

Main Focus: The scale of the dividend cut and the company's pension are expected to be key the key focus. BT is due to update the market on the status of its pension, in a review that could throw up a deficit of GBP5 billion or more. There is keen interest on the company's review of global services, with further write-downs relating to the unit a possibility.

Vodafone Group - 19 May
Market Expectations: Vodafone confirmed its underlying full year expectations at the third quarter but raised guidance on positive foreign exchange movements, which will count towards the bulk of its expected rise in revenue at the full year. European growth has largely stalled but some of the group's emerging markets are still driving revenue up, albeit at a slower pace than before.

Main Focus: Guidance will be closely watched to see if there is continued pressure on revenue, especially in Europe, and for signs the group's GBP1 billion cost cutting program is helping to maintain margins. Specific markets in the spotlight include Spain, where competition and the country's severe economic downturn have impacted Vodafone's European earnings, and Turkey, where regulation and competition have led to a slump in revenue.

Источник: Total Telecom

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