The Spanish telecommunications firm's first-half net profit fell to 989 million euros ($878.3 million) from 1.02 billion euros in the year-earlier period. Analysts had expected net profit of around 981 million euros.

Pretax profit fell 2.1 per cent to 1.37 billion euros, while operating profit decreased 0.8 per cent to 2.52 billion euros. This came despite a 23.8 per cent rise in sales to 13.28 billion euros.

These were the first results from Telefonica since the company's management shakeup last month. Cesar Alierta became chairman, replacing Jaun Villalonga, who was criticised for allowing his thirst for deal making to overshadow his day-to-day responsibilities.

The company's cell-phone unit, Telefonica Moviles Espana, posted revenue of 2.22 billion euros, up 32.9 per cent, while earnings before interest, taxes, depreciation and amortisation - Ebitda - rose 34.6 per cent to 814 million euros. The unit had a domestic market share of 50 per cent in the first half, while the number of clients increased 47.5 per cent to 2.4 million.

The domestic fixed-line unit, Telefonica de Espana, did not fare as well. Ebitda was 2.35 billion euros, down 13.6 per cent from 2.72 billion euros, and revenue rose just 1.8 per cent to 5.14 billion euros. Telefonica blamed the decline in fixed-line earnings on liberalisation and deregulation. The Spanish Government has been cutting fixed-line tariffs as part of its move to promote competition and combat rising inflation.

Telefonica's telecom-services unit, Telefonica Data, also posted disappointing results, while the group absorbed a loss from Internet unit Terra Networks.

Ebitda for Telefonica Data fell 23.1 per cent to 41.2 million euros, while the unit's revenue rose 17.4 per cent to 338.6 million euros. Telefonica Data's earnings were affected by the integration of Acea-Telefonica and data-transmission company European Telecom International. The integration of European Telecom International trimmed 7.4 million euros from Telefonica Data's Ebitda, without which it would have been 48.8 million euros.

Internet unit Terra Networks lifted its subscriber base to 2.7 million, double the number it had at the end of 1999. Still, the unit's loss before interest, taxes, depreciation and amortisation widened to 153.9 million euros from 10.8 million euros in first half of 1999.

Terra Networks's revenue, however, rose to 80.6 million euros from 30 million euros. Around 64 per cent came from access to the portal and 24 per cent from the portal itself. The majority of the access revenue came from paying clients and traffic agreements. Revenue from advertising sales on the portal was 169 million euros.

(The Wall Street Journal)