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Telefonica reports Q2 profit ahead of Vivo acquisition

Telefonica, one of the largest mobile operators in Spain and Latin America, saw its profits rise by 16% in the second quarter of 2010, with a weaker Spanish market being offset by an increase in revenue from Latin America.

The operator’s 2.12 billion-euro net profit outstripped analysts’ predictions of 1.92 billion euros, with revenue in Latin America rising by 16% to compensate for Spain’s 3.2% drop.

Meanwhile, Telefonica has concluded a deal with Portugal Telecom to purchase the latter’s 50% stake in Brasilcel, a joint venture between the two operators. The 7.5 billion-euro acquisition affords Telefonica ownership of Vivo, the Brazilian mobile operator.

The purchase comes at a hefty price, with Telefonica reportedly offering 350 million euros more than the initial offer, which was accepted by PT shareholders but rejected by the Portuguese government.

However, Telefonica is hoping that the move into the growing Brazilian market will allow it to offset falling revenues from the near-saturated European market. The operator is aiming to integrate its mobile and fixed-line operations (Telesp and Vivo) to match the actions of its main rival, America Movil.

Telefonica claimed that the acquisition of Vivo would bring the company “undisputed leadership of the Brazilian telecommunications market”, noting that “the entity to result from the Telesp-Vivo business combination, to which Telefónica will bring its extensive track record in integrating acquisitions and capturing synergies, will be the largest integrated operator in Brazil by all key metrics: by customer numbers (69.2 million to March 2010), revenue/OIBDA (EUR11.8 billion and EUR4.1 billion in 2009, respectively), and profitability (OIBDA margin 2009: 35 percent).”

The purchase is expected to begin generating revenue for Telefonica immediately, with the operator expecting an increase in earnings and cash flow from year one. PT meanwhile has confirmed that it will purchase a 22.4% stake in Oi, Brazil’s fourth-largest mobile operator, for US$4.76 billion.

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