Telefonica Brasil SA (ADR) (VIV), TIM Participacoes SA (ADR) (TSU), Oi SA (ADR) (OIBR) – The Great Telephone Operators of Brazil: Which Ones to Buy?

The growing smartphone market is pressuring TIM Participacoes SA (ADR) (NYSE:TSU)’s margins downwards, but this is something to expect in the near-term.

Not promising — Dominant in fixed line operations

Oi SA (ADR) (NYSE:OIBR) is the fourth-largest mobile carrier in Brazil. However, while revenue growth is driven by its mobile segment, most of its revenue comes from fixed-line operations. The firm has 53% fixed-line market share in Brazil, and dominates all of the major regions in the country with the exception of Sao Paulo.

Oi SA (ADR) (NYSE:OIBR)’s first-quarter revenue grew 3.5% year-over-year to $3.5 billion. However, wireless ARPU was down 3.8% year-over-year, its lowest level in years, due to lower interconnection revenue after fees were cut. However, in its residential segment, strong customer demand for triple-play and quadruple-play services drove ARPU up 9%. Oi SA (ADR) (NYSE:OIBR)’s pay TV penetration rate has more than doubled in the past year.

CFO Alex Zornig declared recently that Oi SA (ADR) (NYSE:OIBR) will continue to pay the highest dividend yield among telecommunications providers, totaling 4 billion reais ($2 billion) through 2014, as long as earnings keep pace with debt. First-quarter EBITDA was up 6.6% year-over-year, but the cash balance dropped 67% and net debt surged 63%.

Bottom line

Telefonica Brasil SA (ADR) (NYSE:VIV) is my first choice as an attractive defensive stock. Merging with Vivo helped it return to profitability and become more economically efficient, something that Oi SA (ADR) (NYSE:OIBR) is still lacking. In addition, with the mobile market maturing, Telefonica managed to increase ARPU by 3.4% in the first-quarter, while TIM Participacoes SA (ADR) (NYSE:TSU)’s dropped 3.6% and Oi’s fell 3.8%.

TIM Participacoes SA (ADR) (NYSE:TSU) is my second choice. Its ability to enhance profitability and efficiency without having to make a major acquisition is encouraging.

Telefonica and TIM have robust dividends and strong balance sheets. In contrast, one of Oi SA (ADR) (NYSE:OIBR)’s most appealing attribute, its dividend, is now in question.

The article The Great Telephone Operators of Brazil: Which Ones to Buy? originally appeared on Fool.com and is written by Damian Illia.

Damian Illia has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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