March 29, 2023

Raw Data: Deciphering the Decline in Spanish Mobile Accounts

BERLIN — It would take the unimaginable — a major power outage, a natural disaster or a sudden, permanent loss of income — for many people to abandon their mobile phones.

That is what appears to be happening in Spain in the midst of its economic crisis. But in the country’s telecom sector, as in a Salvador Dalí painting, there may be more than meets the eye.

The Spanish regulator, Comisión del Mercado de las Telecomunicaciones, said last week that 486,183 mobile phone accounts were deactivated by Spanish operators in October alone, the ninth straight month of contraction that has seen two million prepaid accounts, or 9.4 percent of the current total, taken off networks since February.

The biggest reason for the industry’s difficulties is the most obvious: Spain’s economic slowdown, highlighted by its 26.2 percent unemployment rate in October, including a jobless rate of nearly 50 percent among cellphone-conscious young consumers.

Rosalind Craven, who analyzes West European mobile operators at International Data Corp. in London, said the nine months of contracting figures reported by Telefónica’s Movistar and Vodafone Spain, the two largest mobile operators, reflected the economic challenges facing consumers.

“Because it has been going on for so long, this indicates that the reason is indeed the country’s economic distress,” she said. “People in Spain have less money and are looking to save where they can.”

From January through October, Movistar, the market leader, has deactivated 2.3 million mobile accounts. Vodafone Spain, the No.2, shut off 1.3 million accounts, according to the telecommunications commission. Conversely, Orange Spain, the No.3, has gained 124,420 customers and Yoigo, owned by TeliaSonera of Sweden, has added 412,580. Virtual operators, which are low-cost resellers, have added 1.1 million customers.

But three other developments unrelated to Spain’s slowing economy may be exaggerating signs of a telecom sector meltdown.

The first was the decision by Movistar and Vodafone this year to stop subsidizing new handsets. The cost-cutting move caused many customers to switch to Orange, Yoigo and virtual operators like Simyo, which continued to provide subsidies. Both Movistar and Vodafone have since partially reinstated subsidies.

The other influence was a decision by Telefónica and Vodafone to focus on their most lucrative clients — contract customers who pay on average about €25, or $33, each month, more than double what prepaid customers pay. Telefónica, for example, has signed up one million customers since October to a new plan called Movistar Fusión, a package of mobile, fixed and Internet flat-rate service starting at €49.99 a month.

A third, less obvious reason, may be the counting methods used by the operators, which during economic downturns have been known to purge inactive accounts more aggressively from subscriber lists. Such cullings bolster the average monthly revenue per user, the main bellwether used by investors to value operators.

Representatives for Telefónica and Vodafone declined to say if they were aggressively purging their lists. Ms. Craven, the I.D.C. analyst, said operators in Greece conducted a mass purge in 2009 as that country’s economic crisis began to worsen.

Operators generally declare accounts to be inactive when they are unused for three or six months. In good economic times, bigger customer rolls help operators claim greater market share. In bad times, the bigger lists dilute scarce earnings.

Spaniards do not appear to be abandoning their “móviles.” Cellphone penetration in Spain was 116 percent in October, and many people carry more than one SIM card. The inactive accounts being shut down, said Agustín Diaz-Pinés, an analyst at the Organization for Economic Cooperation and Development in Paris, are likely to be extra SIM accounts.

“Undoubtedly the economic downturn plays a role here, but I don’t think many people are dropping their mobile subscriptions,” he said. “They may rather be canceling duplications, for example, the prepaid line you never use.”

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DealBook: Goldman Sachs Swings to Profit as Revenue Surges

Lloyd Blankfein, chief of Goldman Sachs.Mark Lennihan/Associated PressLloyd Blankfein, chief of Goldman Sachs.

Goldman Sachs said on Tuesday that it swung to a profit in the third quarter, a strong comeback from a year ago, when it reported a rare quarterly stumble in the wake of losses in its private equity portfolio and broader global economic issues.

For the quarter, the firm reported net earnings applicable to common shareholders of $1.46 billion, or $2.85 a share, compared with a loss of $428 million, or 84 cents a share, in the quarter a year earlier.

Goldman’s revenue more than doubled, to $8.35 billion, from $3.59 billion in the year-ago period. The results exceeded the consensus of Wall Street analysts surveyed by Thomson Reuters.

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“This quarter’s performance was generally solid in the context of a still challenging economic environment,” Lloyd C. Blankfein, Goldman’s chairman and chief executive, said in a statement.

The better-than-expected performance is welcome news for Goldman, which has had a tough year as it has struggled against both economic challenges at home and abroad and new regulations that have reduced profitability.

Goldman Sachs

Goldman is not alone in feeling the profit pinch, and this quarter its rivals were aided by revenue from a boom in mortgage refinancing, a corner of the market in which Goldman does not have a big presence.

Still, net revenue in Goldman’s powerful fixed income, currency and commodities unit came in at $2.22 billion, 28 percent higher than the third quarter of 2011. The company said the increase reflected “significantly higher” revenue from trading in mortgages as well as a bump in revenue from trading items like currencies and interest-rate products.

During the first half of the year the firm earned roughly $3 billion in profit, down 20 percent from the same period last year.

The results also included a bump in the firm’s quarterly dividend, which the board recently voted to increase by 4 cents, to 50 cents a share.

Goldman’s annualized return on equity, a critical measure of profitability which effectively measures the profits a bank was able to generate on its capital, was 8.6 percent in the quarter. This is roughly the same as this time last year and up from 5.4 percent in the second quarter.

Still, Goldman’s single-digit return on equity is a stark reminder of how much more difficult today’s operating environment is. In 2006, its return on equity was 32.8 percent.

The firm set aside $3.68 billion, or 44 percent of its revenue, to pay employees. This is in line with previous accruals. The firm does not actually pay much of that out until early 2013, after it knows the year-end performance.

At the end of September Goldman had 32,600 staff consultants and temporary workers on the payroll, down 5 percent from a year ago. Goldman and its rivals have been moving to cut staff to make up for revenue shortfalls in a number of areas.

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FedEx Sees Global Slowdown, Cuts Profit Outlook

The slowdown prompted the world’s second-largest package delivery company to lower its earnings expectations for the fiscal year that ends in May. But while anxiety over the economy created a rout in the stock markets, and its own shares, FedEx isn’t yet ready to predict another recession in the U.S.

“While there’s been considerable speculation that the economy has or will soon enter a recession, this is not our view at present,” FedEx CEO Fred Smith said Thursday on a conference call. FedEx’s larger rival United Parcel Service Inc. said last week that it thinks another recession is unlikely, although it warned of a “bumpy ride” for the global economy.

“Our customers’ hair is not on fire. They’re just saying we’re taking it steady as she goes. It just feels completely different than it did back in ’08,” FedEx Chief Financial Officer Alan Graf said.

Investors weren’t so sanguine. They sent FedEx shares down as low as $64.55, a level not seen in more than two years. In mid-afternoon the shares had fallen 9.6 percent to $65.59. The shares had already lost about a quarter of their value since FedEx last reported earnings in June. UPS shares dropped 4.3 percent to $61.55.

FedEx and UPS are closely watched indicators of broader economic health because they ship so many packages between consumers and businesses every day.

When consumers and businesses are concerned about the strength of the economy, they tend to choose slower shipping options — like switching from overnight express service to slower ground shipping — to save money. It’s the same move many made during the recession.

FedEx executives said lagging consumer sentiment, driven partly by a lack of confidence that officials in Europe and the U.S. will find effective solutions to their countries’ economic challenges, is the biggest impediment to economic growth.

“We’ve got to turn around this sentiment in order to see some growth beyond what we are expecting right now,” Smith said

FedEx now expects to earn between $6.25 and $6.75 per share for fiscal 2012, compared with a previous estimate of $6.35 to $6.85 per share. Analysts expect $6.39 per share, according to FactSet Research.

For the fiscal first quarter that ended in August, FedEx says an increase in deliveries by truck offset a drop-off in shipments by air. Net income rose 22 percent to $464 million or $1.46 per share in the three-month period, compared with $380 million, or $1.20 per share, a year earlier. Revenue rose 11 percent to $10.52 billion.

Analysts expected a profit of $1.45 per share on revenue of $10.32 billion.

Express shipments slowed most notably from China, where growth had been robust. FedEx said the slowdown in that division outpaced its ability to cut costs, which it said it’s doing aggressively to balance demand. As a result, the Express division’s operating income fell 19 percent, even as revenue rose 12 percent. Average daily express volume in the U.S. fell 3 percent. But revenue per package rose 13 percent as packages weighed more on average and FedEx tacked on higher fuel surcharges.

Operating income in FedEx’s ground segment leaped 42 percent to $407 million. Revenue rose 16 percent to $2.28 billion. Average daily package volume grew 5 percent driven by an increase in shipments between businesses and FedEx home delivery service. International priority shipments — the speediest and most expensive shipping option — fell an average of 4 percent per day.

FedEx’s freight segment, which hauls heavier shipments like refrigerators and car parts, posted an operating profit of $42 million compared with a loss of $16 million a year earlier. Revenue rose 6 percent.


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