October 25, 2017 / 10:28 AM / a year ago

UPDATE 3-Telefonica Brasil's 3rd-quarter hits profit targets; cost discipline helps

(Adds CEO and analyst quotes, updates share price)

By Gram Slattery

SAO PAULO, Oct 25 (Reuters) - Telefonica Brasil SA , the country’s biggest telecommunications firm, posted a 28 percent rise in quarterly profit on Wednesday, helped by tight cost controls and increased revenue per customer.

Profit at the Brazilian unit of Spain’s Telefonica rose to 1.223 billion reais ($377 million), compared with an average forecast of 1.177 billion reais in a Reuters survey of analysts.

The performance of Vivo, as the carrier is branded locally, reflects an emphasis on post-paid growth and other higher-end offerings to boost profits as the country begins to emerge from is worst recession in a century.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 7.8 percent to 3.68 billion reais, roughly in line with a consensus estimate of 3.66 billion reais.

“I think this quarter reinforces a strategy that’s been consistent: very focused on data, very focused on the requirements that a digital client has today,” CEO Eduardo Navarro told journalists.

Analysts at UBS said the results were “solid,” highlighting an expansion in some higher-end fixed line segments.

Vivo, Brazil’s biggest telecommunications company by usership, said average revenue per user of mobile services, or mobile ARPU, rose 2.1 percent from a year earlier. Post-paid connections rose 9.7 percent while pre-paid connections fell by 5.1 percent.

Operational costs fell by 1 percent due to spending controls across the board and a decrease in Brazil’s interconnection fees between mobile and fixed-line networks, which have fallen dramatically in recent years.

Navarro said further cost-cutting efforts would center on the transition to digital services. Vivo is focused particularly on reducing billing, call centers, and recharging devices costs, he added.

The company’s capital expenditures rose to 2.188 billion from 1.82 billion reais in the previous quarter.

Navarro said Vivo is keeping its capital spending target of 8 billion reais for 2017, which would imply investments of 2.7 billion reais in the fourth quarter, as Vivo continues to expand its fiber-to-the-home connections and fourth-generation mobile network.

In a call with investors, Navarro also said Vivo is concerned about foreign state-run companies entering Brazil’s telecoms sector, with China Telecom Corp Ltd seeking to participate in a capital injection plan to help competitor Oi SA emerge from bankruptcy protection.

Telefonica Brasil shares opened up 2 percent, before falling back to level at 50.84 reais in early afternoon trading in Sao Paulo.

$1 = 3.24 reais Reporting by Gram Slattery; editing by Jason Neely and Susan Thomas

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