UPDATE 2-Telefonica Brasil invests more to fight broadband rivals

Mon Feb 25, 2013 11:43am EST

* Brazil unit of Spain's Telefonica to raise capex 11-12 pct

* Signs of "more rational" prices in mobile market this year

* Net income 34 percent higher than expected on one-time effects

By Brad Haynes

SAO PAULO, Feb 25 (Reuters) - Brazilian phone company Telefonica Brasil SA plans to increase investments this year in an attempt to boost broadband speeds as fixed-line revenue suffers from rising competition.

The Brazilian unit of Spain's Telefonica is budgeting an 11 percent to 12 percent rise in capital spending in 2013 from last year, Controller Cristiane Barretto Sales told analysts on Monday during a call to discuss earnings.

"We are not happy with our general performance in the fixed business, mainly in TV and broadband. We are in the process of implementing a strong tactical plan to turn around this business," said senior executive Paulo Cesar Teixeira.

The need for rising investments reflects the increasingly crowded Brazilian telecom market, where a sharp slowdown has toughened the fight for the highest spending subscribers.

Stiffer broadband competition in Telefonica's core Sao Paulo market contributed to a 7.6 percent drop in fixed-line revenue in the fourth-quarter from a year earlier, barely offset by rising revenue from wireless services.

Executives said faster broadband performance would help compete with America Movil's NET unit, new residential offerings from Telecom Italia's TIM Participacoes and GVT, the broadband provider up for sale by French group Vivendi.

In the fourth quarter, cost controls and one-time asset sales helped the company hold net income stable from a year earlier at 1.474 billion reais ($748 million), beating the average forecast of 1.1 billion reais in a Reuters poll of analysts.

Shares of Telefonica Brasil rose 3.3 percent in Sao Paulo trading, the biggest rise on the Bovespa stock index.

Improved efficiency and personnel cuts since the integration of mobile unit Vivo have allowed Telefonica to generate more cash even as aggressive pricing from wireless competitors weighed on average revenue per mobile user.

Teixeira said he hoped pricing in Brazil's wireless market would be "more rational" this year, citing regulatory restrictions on certain promotional plans last year.

He added that Telefonica does not intend to reduce mobile pricing or offer unlimited pre-paid voice and data plans like the aggressive offers from some of its rivals.

Amid the stiff competition, asset sales and more sustainable savings from renegotiated contracts allowed Telefonica to cut costs and boost profitability in the fourth quarter.

Earnings before interest, taxes, depreciation and amortization rose 17 percent to 3.854 billion reais, well above a forecast of 3.0 billion reais. Without one-time savings and asset sales, EBITDA rose 9 percent to 3.178 billion reais from a year earlier.

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