Bloomberg News

Oi Profit Falls on Fixed-Line Revenue Slowdown, Currency Drop

October 27, 2011

Oct. 28 (Bloomberg) -- Tele Norte Leste Participacoes SA, the telecommunications company that operates under the Oi brand, said third-quarter profit fell 33 percent as fixed-line revenue decreased and the Brazilian real’s decline increased the burden of its dollar-denominated debt.

Net income excluding minority interests fell to 285.1 million reais ($166.7 million), from 423 million reais a year earlier, the Rio de Janeiro-based company said in a regulatory filing yesterday. The result surpassed the mean estimate of 250 million reais by five analysts surveyed by Bloomberg. Sales declined 5.5 percent to 6.94 billion reais.

“The decrease in revenues continues, it’s still associated with the retreat of the fixed-line business”, Luciana Leocadio, head analyst at Rio de Janeiro-based brokerage Ativa Corretora, said in an Oct. 25 telephone interview. “They are suffering more than others from the migration from fixed-line to mobile.”

The company has been losing market share in the Brazilian mobile-phone market this year. Oi accounted for 18.8 percent of Brazil’s mobile market in September, the lowest share among the top four companies in the industry, after Vivo Participacoes SA, Tim Participacoes SA and Claro SA, according to the country’s telecommunications regulator, known as Anatel. In June, Oi’s market share was 19.1 percent.

Oi aims to have 25 percent of the market by 2014, Chief Financial Officer Alex Zornig said in a conference call with journalists yesterday after the earnings were announced.

Financial Loss

Oi had a financial loss of 592 million reais, or 13 percent more than a year earlier, as Brazil’s real slumped 17 percent in the third quarter, the second-worst emerging market performer after Poland in the period.

The company won’t achieve its planned capital expenditure of 5 billion reais for 2011, Zornig said. Capex will end 2011 at about 4.5 billion reais, he said.

Telemar Participacoes SA, Oi’s parent company, said May 24 it plans to merge four units, including Telemar Norte Leste, Tele Norte Leste Participações SA and Brasil Telecom SA, into one entity that will be Brazil’s largest fixed-line telephone company. Some minority shareholders don’t agree with the conditions of the deal and plan to appeal to the country’s securities regulator, CVM.

“The process is still a large uncertainty,” said Leocadia. ”If minority shareholders could convince CVM that the controller cannot vote, it may not happen.”

Oi rose 4.2 percent to close at 19.40 reais in Sao Paulo trading yesterday. The shares have lost 20 percent this year, compared with a drop of 14 percent for the benchmark Bovespa index.

--Editors: Karen Eeuwens, Jonathan Roeder

To contact the reporters on this story: Tais Fuoco in Sao Paulo at tfuoco1@bloomberg.net Fabiola Moura in New York at fdemoura@bloomberg.net

To contact the editor responsible for this story: Helder Marinho at hmarinhomdeoliveira@bloomberg.net


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