* Spain shows signs of rebound, not translating into profit
* Underlying business improves in most other markets
* But currencies, lower margins weigh on results
(Adds details on Spain, updates share price)
By Julien Toyer and Andrés González
MADRID, July 31 Telefonica SA gained
new customers in Spain at a faster pace in the second quarter,
an early sign of a turnaround from a three-year slump that wiped
out more than one third of revenue and core profit in its
Spain has been the weak spot for Europe's biggest telecoms
firm by revenue as cash-strapped consumers cut spending on
mobile, internet and television services during a deep recession
that ended last year.
However Telefonica's second-quarter results on Thursday
showed evidence that recent investments in high-cost fibre optic
networks and packages that combine mobile and fixed-line phones,
high-speed Internet and TV could be starting to pay off.
The company, which has agreed to buy Prisa's pay-TV business
Canal+, said 348,000 new clients had signed to its TV packages
in Spain in the second quarter and it had gained mobile
subscribers in the country for the first time in three years.
It also said it had now connected 5 million homes to its
Spanish fibre network and that the service has 861,000 clients,
after new sign-ups increased by 70 percent from the first
The improvement however came at the expense of lower
margins, down 2 percentage points from the first quarter, with
some analysts questioning whether Telefonica would eventually
benefit from its investment. The margin on operating income
before depreciation and amortisation fell to 45.8 pct in the
"There is evidence of better commercial traction but
domestic competition has intensified, leaving some doubt as to
what residual benefits Telefonica might hold on to from its
higher investments," Jefferies analysts said in a note to
Revenue in Spain fell 9.1 percent in the second quarter.
However, other analysts were more upbeat and said Telefonica
would soon report growth, possibly in the last quarter of this
year or the first three months of 2015.
Telefonica shares were down 1.3 percent in afternoon trade,
outperforming Spain's blue-chip Ibex index which fell
The company's underlying business also came closer to
stabilising in Germany and improved in Britain, Brazil and the
rest of Latin America although depreciating currencies in that
region drove down earnings.
Operating income fell 15 percent to 4.13 billion euros ($5.5
billion) on revenue down 11.8 percent at 12.73 billion, in line
with analysts' forecasts.
Telefonica missed earnings forecasts in the first quarter.
Net profit jumped 4.9 percent to 1.21 billion euros, mainly
due to a change in tax accounting in Brazil.
Debt, a major headache for Telefonica in the past, increased
by 1 billion euros in the quarter to 43.8 billion euros, still
on track for an end-year target of below 43 billion euros.
The debt level, though, does not leave Telefonica much room
for manoeuvre in terms of potential purchases in markets such as
Mexico, where the group said this week it was in talks over a
possible deal that would increase its market share against
($1 = 0.7465 Euros)
(Editing by Erica Billingham)