June 27, 2013 / 3:06 PM / in 6 years

UPDATE 2-DirecTV says Sky Brasil subscriber numbers were fudged

* Company says Sky Brasil subscriber count at March 31 should have been 200,000 lower

* Says expected to take pretax charge of $25 mln in second quarter

* Shares fall as much as 4 pct

By Chandni Doulatramani

June 27 (Reuters) - Satellite TV provider DirecTV said its Sky Brasil unit had over-reported subscriber numbers for the last two quarters because of improper practices by some employees, sending its shares down as much as 4 percent.

The company, which owns about 93 percent of Sky Brasil, said on Thursday an internal investigation had found that some employees had improperly credited subscriber accounts to reduce or eliminate balances owed, artificially reducing attrition.

Sky Brasil is one of DirecTV’s fastest growing units, and much of the company’s recent subscriber growth has come from the expanding middle class in countries such as Brazil.

But subscriber churn has picked up as competition intensifies and the Brazilian economy weakens, and the company said again on Thursday that it expected to lose more customers than it had originally estimated.

The number of Sky Brasil subscribers as of March 31 was overstated by about 200,000, DirecTV said, while the number of subscribers reported as of Dec. 31 should have been about 100,000 lower. ()

Sky Brasil had told Brazilian regulators that it had about 5 million subscribers at the end of December and about 5.3 million at the end of March, DirecTV said.

DirecTV shares jumped to a decade-high last month after better-than-expected growth in Latin America helped the company post a strong first-quarter profit.

The company, which has a total of more than 20 million customers, gets about 13 percent of its total revenue from Sky Brasil.

DirecTV also operates in Colombia, Argentina, Venezuela, Chile and Ecuador.

“This is not a good time to have a flag raised on anything that pertains to Brazil, given the issues with the (weakening) currency, and given the issues with the riots down there,” Wunderlich Securities Inc analyst Matthew Harrigan said.

Brazilians have taken to the streets to protest against corruption, lack of services and the billions of dollars the country has spent building new stadiums for the soccer World Cup and Olympics. The Brazilian real has fallen about 7 percent against the U.S. dollar since January.

DirecTV said it expected to take a pretax charge of about $25 million in the current quarter to recognize the increased churn.

“Customers are looking for better deals, and the macro environment has toughened in Brazil,” said ISI Group analyst Vijay Jayant. “People are more price conscious, so churn is being impacted because of that.”

The company said it expected to remove substantially all subscribers who were improperly recognized as active from Sky Brasil’s subscriber base by the end of June.

DirecTV shares were down 1 percent at $60.46 in morning trade on the Nasdaq.

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