UPDATE 1-Telefonica Brasil 4th-qtr profit falls as sales stagnate

Wed Feb 26, 2014 7:45am EST

SAO PAULO Feb 26 (Reuters) - Telefonica Brasil SA on Wednesday posted a 17 percent drop in fourth-quarter net income as the Brazilian phone company spent heavily on marketing to boost stagnant sales in a crowded wireless market.

Profit at the Brazilian unit of Spain's Telefonica fell to 1.231 billion reais ($527 million) versus 1.474 billion reais a year ago. The latest result topped the average analyst estimate of 1.11 billion reais, according to a Reuters survey.

Revenue edged up less than 2 percent from a year ago, but operating costs jumped 22 percent as Telefonica stepped up aggressive advertising and commissions to bolster its pay-TV and broadband services.

The competition in Brazil's rapidly cooling telecommunications market, worsened by tighter credit and eroding consumer confidence, has reinforced expectations among analysts that the country could soon lose a mobile carrier.

Since late last year, there have been persistent reports suggesting the possible breakup and sale of No. 2 wireless operator TIM ParticipaƧƵes. If that happens, it could ease antitrust issues facing Telefonica in Brazil as it moves to take control of TIM's parent, Telecom Italia.

The companies mentioned in the reports have denied any ongoing negotiations.

Telefonica's fourth-quarter earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as cash flow, fell 26 percent to 2.871 billion reais, but topped the average analyst estimate of 2.63 billion reais.