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Telefonica sees Spain, services helping to meet 2019 guidance

FILE PHOTO: A woman walks into a Telefonica office building in Barcelona, Spain, October 22, 2018. REUTERS/Albert Gea

By Isla Binnie

MADRID (Reuters) - Spain's Telefonica expects improvements in its home market, service revenues and more efficient use of digital technology to help boost earnings growth and meet full-year guidance, the company said on Friday.

Large telecoms operators across Europe are battling to maintain growth in the face of strong competition from low-cost rivals, while at the same time investing heavily in next-generation mobile networks and fibre broadband.

Telefonica said its revenue growth trend improved in the first quarter. Organic growth - adjusted for factors including foreign exchange rates, new accounting rules and capital gains - was 3.8 percent.

First-quarter operating income rose 1 percent, and Chief Operating Officer Angel Vila reiterated revenue and margin growth guidance of about 2 percent over the full year.

Europe's third-largest telecoms operator by market value expects better growth in the second half, Vila told analysts on a conference call.

That will be driven by improvements in the Spanish market, where revenue has risen for seven quarters in a row, as well as lower net content costs and "further efficiency in commercial channels" using automation and digitalisation, he said.

Chief Executive Jose Maria Alvarez Pallete said in February that the company's 2019 guidance was "prudent" and implied margins would remain stable.

Telefonica's main European competitors are Deutsche Telekom, Vodafone and France's Orange.

Adjusted operating income before depreciation and amortisation (OIBDA) rose 1 percent on an organic basis to 4.26 billion euros (3.68 billion pounds) in the first quarter, Telefonica said earlier.

Shares rose after the results were announced, but fell back by late morning to change hands for 7.12 euros, a whisker below their opening level and broadly in line with the overall market.

OIBDA was up 10.3 percent on a reported basis partly due to new accounting rules. Underlying OIBDA came in at 3.730 billion euros, compared with a 3.739 billion euro average of analyst estimates provided by the company.

The new accounting rule changes the treatment of leases for assets such as phone masts, arrangements that telecoms firms often rely on to manage their networks.

Telefonica said it had shaved 1.7 percent off a debt pile built from heavy investment in its networks, leaving it at 40.4 billion euros, calculated to reflect the new accounting rules.


(Reporting by Isla Binnie; Editing by David Goodman and Jan Harvey)