UPDATE 2-Vivo net more than doubles, shares surge

* Q3 profit jumps as costs fall, user base grows

* EBITDA margins jump; market share rises

* ARPU falls 10 pct from yr-ago, but rises vs Q2

* Shares jump as much as 6.3 pct from Wednesday close (Recasts to add byline, remarks from CEO Lima interview)

By Cesar Bianconi and Guillermo Parra-Bernal

SAO PAULO, Nov 5 (Reuters) - Vivo Participacoes, Brazil's largest mobile phone carrier, said on Thursday that third-quarter net income more than doubled as operating costs and financial expenses dropped and data services revenue swelled.

Sao Paulo-based Vivo, a joint venture owned by Portugal Telecom (PTC.LS) and Spain's Telefonica (TEF.MC), reported profit of 340 million reais ($196 million), up from 133.9 million reais a year earlier, according to a securities filing.

Vivo's (VIVO4.SA)(VIV.N) cost of goods sold, such as mobile phone equipment, fell for the second straight quarter. Costs and operational expenses declined 1.2 percent year-to-year, while provisions for unpaid bills dropped 58 percent.

"Vivo showed good cost control, and it is worth highlighting that selling expenses fell 1 percent quarter-on-quarter despite nearly doubling net additions" in the same period, said Barclays Capital analyst Michael Morin.

Preferred shares of the company jumped as much as 6.3 percent to 49.10 reais after the results were disclosed, and were trading 5 percent higher at 48.5 reais in the early afternoon.

Net revenue edged up to 4.09 billion reais from 4.08 billion reais a year earlier and 3.94 billion reais in the prior three months. Data sales jumped 40 percent, and revenue from monthly fees was up 3.4 percent.

By contrast, third-quarter revenue fell at two of Vivo's main rivals, Oi (TNLP4.SA) and TIM Participacoes (TCSL4.SA), an affiliate of Telecom Italia (TLIT.MI). Vivo also competes with Claro, which is owned by Mexico's America Movil (AMXL.MX).

The results suggest competition in Brazil's wireless phone market, Latin America's biggest, is heating up as users cut back or reallocate spending months after the country exited its first recession in almost two decades, Vivo Chief Executive Officer Roberto Lima told Reuters.

Vivo's future success will hinge on controlling costs while offering consumer discounts that don't put cash generation in jeopardy, he added.

"We had growth in revenues and good cost management," Lima said. "We achieved that by maintaining a level of aggressiveness that matched the competition in the market."

Average revenue per user, or ARPU, a key measure of revenue in the telecom industry, fell 10.2 percent from a year earlier to 26.4 reais, but rose 0.4 percent from the previous quarter.

The company ended September with almost 49 million clients, 15.5 percent more than a year earlier. The number of client disconnections out of total users, or the churn rate, fell to 2.5 percent from 2.6 percent a year earlier.

"Vivo gained market share in the quarter without hurting the results with its aggressive price policy," Lima added.

EBITDA

Vivo had posted a profit of 172.4 million reais for the second quarter.

Earnings before interest, taxes, depreciation and amortization, a measure of operational profitability known as EBITDA, rose 6 percent to 1.40 billion reais from 1.32 billion reais a year earlier due to growth in data services and cost cuts.

EBITDA was 1.2 billion reais in the second quarter.

EBITDA as a percentage of sales -- a measure of operational profitability widely followed by analysts known as EBITDA margin -- jumped to 34.4 percent in the third quarter from 32.5 percent a year earlier.

Cash generation was also bolstered by a 30 percent drop in financial expenses to 168.3 million reais.

Net debt rose to 4.21 billion reais in the quarter from 3.97 billion reais a year earlier after the company stepped up borrowing to complete the purchase of Telemig Celular last year, but was down from 4.63 billion reais in the second quarter. ($1=1.728 reais) (Additional reporting by Luciana Lopez and Alberto Alerigi Jr.)