Cia de Telecom de Chile SA (ADR) (CTC)

Understanding the guide to growth can no more be fixed-line, is what Telefónica CTC Chile has understood. Chile’s largest fixed-line telephone company is rapidly diversifying its business to broadband and pay-television services. Company recently announced its plans to invest $221 million in 2007 in its broadband and pay-television services in a bid to recast the company as a multi-service provider. The CEO said its strategy is to invest two of every three dollars toward growing the company's broadband and television businesses and the packaging of those services.





For the three months ended March 2007, revenues decreased by 1% due to lower proceeds from basic telephone services, long distance and corporate communications. Net income increased by 40% benefited from significantly lower other non-operating expense, reduced goodwill & interest expense, increased interest income offsetting reduced gross margin. Broadband business showed positive signs, but it was not enough to offset the decline in the fixed line telecommunications and corporate business areas, which have been hit by rapid growth in mobile phone services and increasing competition.





Company’s average number of lines in service is continuously declining, but the TV customers and ADSL connections are on a sharp rise. A recent growth in paid television was noteworthy, where it attained a 10% market share after only six months, which it projects to be in the range of 15 to 20 % by the end of 2007. Internet and paid television along with service packages represented 69 % of the company’s sales of $1.08 billion last year, which is estimated between 80 to 85 % of sales for the coming year.





CTC has recently planned to change its policy, which calls for 100% of net profit to be paid in dividends. This change would enable company to retain more cash which could be utilized for further growth. The company is generating free cash flow and reducing debt to improve financial stability. Although the company has not done convincingly well during recent times, the outlook still seems attractive given the diversification strategy falls in place.