BERLIN Telefonica's German and Czech divisions said wireless service revenue fell as customers made fewer calls but spent more time online on smartphones and tablets.
Average mobile phone bills in Europe have fallen 15 percent since 2007, and now account for just 62.6 percent of cash flow for European companies, down from 80 percent then, according to research firm Informa.
At the same time, data volume - usually sold for a flat fee - is expected to double each year until 2015, industry group GSMA has said.
Telefonica Deutschland, spun off from its Spanish parent last year, said revenue growth at its wireless business slowed to 3.6 percent in the fourth quarter, less than the 5.6 percent gain in the third quarter and 8.6 percent in the second.
Telefonica Czech Republic's revenue fell 4.8 percent to 12.78 billion crowns ($653.28 million), but better than the 12.70 billion forecast in a Reuters poll of analysts. The company also said it will restart a share buyback program by purchasing up to 2 percent of shares.
Telefonica owns 75 percent of Deutschland and 69.4 percent of the Czech business.
Telecoms companies across Europe are battling an overcrowded market, tough regulations and a deep recession. They risk falling further behind their U.S. rivals if they do not invest in faster networks to support growing use of data-hungry smartphones and tablets.
Europe's biggest mobile operator Vodafone saw its revenue dip 0.4 percent in the first half of its current fiscal year.
Telefonica reports its results on Thursday and analysts expect a 19 percent fall in net profit to 4.4 billion euros, largely impacted by the write-down of its stake in Telecom Italia and currency devaluation in Venezuela.
After a year of asset sales and drastic measures to cut its debt, including scrapping its dividend for the first time since the Spanish Civil War in the 1930s, Telefonica is also expected to report that it has hit its net debt to core earnings target of 2.35 times, or around 50 billion euros compared to over 58 billion euros at end-June.
Investors will also be looking for an update on the company's home market of Spain, where over a quarter of the workforce is unemployed.
Stabilizing its home market, which generates one third of operating income, is essential to attract investors to the stock, which dropped 25 percent last year.
(Reporting by Andreas Cremer, Harro ten Wolde and Clare Kane in Madrid; Editing by Louise Heavens)