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February 20, 1989

TELEFONICA WARNS OF PRICE INCREASES AS IT STRIVES TO EXPAND WITHOUT NEW CAPITAL

By CBR Staff Writer

Telefonica de Espana SA will have to increase its tariffs for 1989 by more than the forecast 3% to continue its Basic Telephone Service Improvement policy begun in September last year. Commenting on the company’s end of year results (CI No 1,114), recently appointed President, Candido Velazquez, said that Telefonica’s profits rose 15% to $530m largely thanks to the installation of new lines and the introduction of the Iberpac packet-switched data service. Operational revenues were up 14% at $5,000m, but operational expenditure increased by 21% to nearly $2,000m due to increased demand for the service and the need to improve it. In addition the company has plans to invest $4,450m without, if possible, increasing its capital. Instead it will continue borrowing, a policy for which it paid $60m in interest last year. Velazquez also intends to deal with Telefonica’s pending Pension Fund problem during 1989 and, as part of the 1989 tariffs, is considering abolishing the flat rate monthly fee for poorer sectors of the community and old age pensioners. With regard to installations, the phone company put in 1.6m lines (80% of which were digital) last year, doubling its installations compared with 1987. Although requests for lines fell below the company’s expectations in the last quarter, Spain still falls behind the rest of Europe in waiting time for installation. In France for example, average waiting time for installation is a fortnight, in the UK it is just under a month, but in Spain it is over two and a half months. Nevertheless, Telefonica plans to invest nearly $19,000m in installation between now and 1992, adding, this year, a further 2.8m lines to the 11.99m currently in service. During 1988 Telefonica also installed 360,000 new circuits (nearly a third of which are inter-city) to improve line quality, and spent $3.6m on foreign publicity justified by the 20.7% of the company’s capital which is traded on the stockmarkets of New York, Tokyo, Frankfurt and Paris. Finally, Telefonica reported depreciation up 24% to $1,700m, gross cash flow up 13% to $2,500m, and earnings per share that rose from $0.54 to $0.60 over the past twelve months.

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