UPDATE 1-Czech Telefonica Q3 earnings beat forecast

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PRAGUE, Oct 23 (Reuters) - The third quarter earnings of
Telefonica O2 Czech Republic (SPTTsp.PR) beat forecasts by a
comfortable margin boosted by shrinking depreciation costs and
an unexpected rise in revenue from fixed line services.

Net profit in the period rose 18.4 percent year on year to
3.2 billion crowns, beating an average forecast 2.83 billion in
a Reuters poll of eleven analysts.

"The overall impression is that they are on the right way to
meet the full year guidance," said Josef Nemy, an analyst at
Komercni Banka.

"I think it could push (the share price) higher," he added.

Revenue for the period rose 5.0 percent to 16.8 billion
crowns, above the forecast 16.07 billion, thanks to higher than
expected income from fixed line connections.

Operating income before interest, tax, depreciation and
amortisation (OIBDA) fell 0.5 percent to 7.2 billion crowns,
above the forecast 7.04 billion.

The Czech Republic's largest telecom company, 69 percent
owned by Spain's Telefonica (TEF.MC), reiterated its full-year
outlook for 2-4 percent revenue growth and a 0-2 percent rise in
OIBDA.

Analysts have said eroding economic growth in the Czech
Republic and Slovakia, the company's main markets, would
continue to weigh on sales and could make it a challenge for the
company to meet the guidance. But Telefonica said it was on
track to meet the goals.

"Continuous deceleration of fixed accesses decline, growth
in broadband, strong contribution of ICT revenues and higher
contribution from Slovakia are the key drivers for the fourth
quarter to achieve the group's revenues growth...," Telefonica
said in a statement, adding that a strict financial discipline
and lower dilution of the group's margin from Slovak operations
will help it meet the OIBDA target.

Prior to the release, Telefonica O2 shares finished up 0.5
percent at 379.3 crowns. The stock has lost 30.6 percent from
the beginning of the year, outperforming Prague's main PX .PX
index which shed 53.4 percent.

The stock trades at 11.04 times 2008 forecast earnings
versus the European sector average of 12.82, according to
Reuters data.

(Reporting by Jana Mlcochova and Jan Korselt; editing by
Elaine Hardcastle)