PREVIEW-Telcos' 2011 home markets, capex in focus

Tue Feb 22, 2011 10:36am EST

* Telekom Austria due Feb 23

* FT, Telefonica, Telecom Italia, PT due Feb 24

* Deutsche Telekom due Feb 25

By Nicola Leske

FRANKFURT, Feb 22 (Reuters) - Investors will focus on domestic markets and capital spending plans this week when five major European telecom operators report their fourth-quarter results and give a glimpse of what to expect this year.

"We expect Europe mobile growth to worsen slightly in Q4 and for cable to continue to take share in fixed line," Credit Suisse analysts said.

Operators hope to eventually compensate the mobile voice decline by turning surging mobile data demand into revenue and carriers in the nordic countries are beginning to show some signs of success.

Still, investors remain wary of the amount of investment needed to expand and upgrade networks to handle data demand.

"CAPEX is the biggest uncertainty for the guidance season, with pressure to build more fibre and mobile capacity," Credit Suisse said.

Telekom Austria (TELA.VI) kicks off the earnings week on Wednesday. Analysts expect the operator to report a 14-percent drop on adjusted fourth-quarter core profit due to lower growth in some of its eastern European markets and declining margins in domestic market. [ID:nLDE71K0PO]

European competitors France Telecom FTE.PA, Telefonica (TEF.MC), Telecom Italia (TLIT.MI) and Portugal Telecom (PTC.LS) are scheduled to follow suit the next day.

TROUBLES AT HOME

For France Telecom investors will also be watching the performance of its home market.

"Concerns still exist over the reliance on the increasingly competitive domestic market, which (excluding the enterprise business) accounts for greater than 50 percent of the group's revenue and more than 60 percent of EBITDA," Robin Bienenstock of Bernstein Research said.

Its Spanish neighbor and rival Telefonica, which is struggling with an especially weak domestic market, is expected to show little variation in trend in its fourth quarter from the rest of the year.[ID:nLDE71H0Y4]

"We expect Telefonica to report worsening revenue erosion in Spain and O2 Germany margins to be weaker, offset only partly by Latin America," Credit Suisse said.

Telefonica has already flagged that the last part of the year, ordinarily the strongest because of the holiday shopping season, has been disappointing, and this has been factored in.

Most analysts are now looking to an investor day set for April 13 for further potential share impetus.

Smaller competitor Portugal Telecom is seen facing what Societe Generale calls the perfect storm as macroeconomic, regulatory and competitive pressure gather momentum.

Portugal has implemented an increase in value added tax and a significant cut in mobile termination rates (MTR). Both will have impacted the operator's mobile segment and analysts anticipate a 12 percent decline in revenues compared with the fourth quarter a year earlier.

For Telecom Italia, the main focus is on its struggling mobile unit, and whether the company has been able to turn it around amid a fierce price war in the Italian mobile market with Vodafone Group (VOD.L) and Wind. The week ends with Deutsche Telekom (DTEGn.DE) results on Friday. The company is expected to report an 8.4 percent drop in quarterly adjusted core profit impacted by a special telco tax in Hungary, cuts in mobile termination rates at home and continued difficult conditions in the Greek market. [ID;nLDE71L0IN]

The German group is likely to give targets for the year but tends to disappoint investors with its cautious outlooks. (Additional reporting by Leila Abboud in Paris, Liz O'leary in Madrid, Deepa Babington in Rome, Elisabete Tavares in Lisbon; Editing by Hans Peters)