* Q1 reported revenues, OIBDA, net profit miss forecasts
* Earnings hit by weaker LatAm currencies, asset sales
* Shares down 2.8 percent, underperforming sector
(Adds analyst, details, background, share price)
By Julien Toyer and Andrés González
MADRID, May 9 Spain's Telefonica set
the tone for another difficult year as it missed first-quarter
earnings forecasts, hit by falling sales in Europe, weaker
currencies in Latin America and the sale of its Czech unit last
Europe's biggest telecoms firm by revenue is, like many
rivals, betting on costly fibre optic networks and packages of
services combining mobile and fixed-line phone, high-speed
internet and TV to attract customers and boost growth in future.
For now, however, the investment is pressuring margins and
driving down profits, at a time when Europe's economy is
struggling to recover from a prolonged period of economic
weakness and growth in many emerging markets is slowing down.
Deutsche Telekom on Thursday reported a 4 percent
drop in quarterly core earnings, the same as posted by France's
Orange last month.
Telefonica said its first-quarter sales dropped 13.5 percent
to 12.23 billion euros ($16.96 billion), while operating income
before depreciation and amortisation (OIBDA) fell 14 percent to
3.93 billion euros and net profit was down 23.2 percent to 692
million euros - all missing analysts' forecasts.
Analysts said its underperformance was due to its exposure
to a still faltering Spanish economy, and to Latin America,
where it makes more than half of its revenues but where economic
growth has been slowing and currencies weakening.
"Telefonica reported first-quarter results 1 percent shy of
expectations ... with trends which are taking longer than
expected to stabilise in Spain and Brazil," said Oddo Securities
analysts in a note to clients.
"Results are somewhat mixed in Spain and Brazil, good in the
UK and uninspiring in Germany and Latin America. As expected,
the group reiterated its guidance for organic growth and limited
margin erosion. First quarter nonetheless reflects a slight lag
on these targets."
At 0855 GMT, Telefonica shares were down 2.8 percent at
11.705 euros, within a European sector down 0.6 percent.
On the plus side, Telefonica said net debt came in at 42.72
billion euros, already meeting a year-end target of below 43
billion, offering room for manoeuvre in the ongoing
consolidation of the telecoms industry worldwide.
Telecoms firms are looking to take advantage of low interest
rates to increase the services they offer and build economies of
scale. However, regulators in many countries are wary of a
reduction in competition.
Telefonica is trying to win approval from Europe's antitrust
authorities for the acquisition of E-Plus in Germany, while in
Brazil, the competition regulator has been seeking to loosen its
grip on the country's telecoms market.
Earlier this week, Telefonica also agreed to buy the pay-TV
business of Spain's Prisa, although that deal too faces
regulatory hurdles as the company would control more than 80
percent of Spain's pay-TV market after the deal.
($1 = 0.7214 Euros)
(Editing by Jane Merriman and Mark Potter)