Spanish wireless use takes off

Almost two thirds of Spaniards now have a mobile phone

Mobile phone use in Spain is growing at among the fastest rates in Europe but average revenue per user is falling, according to the country's leading wireless operator Telefonica Moviles.

The trends illustrate a challenge facing all European mobile phone operators: Market penetration is reaching saturation levels but it remains unclear whether consumers can be persuaded to pay substantially more for new, third-generation services.

Moviles - which has more than 50% of Spain's mobile phone market as well as major interests in fast-growing Latin American markets - increased net profit 20% to 591 million euros ($543m; £373m) in 2000.

It expanded its customer numbers 52% in the year to 21.8 million.

In Spain as a whole, 62% of inhabitants had a mobile phone at the end of 2000, compared with 38% a year earlier.

German problem

Investors were cheered by Moviles' strong profits and customer numbers but took a cautious view of prospects for the coming years.

Average revenue per user was 23% down in 2000 from the year before.

As mobile markets mature, this figure is increasingly being seen as a better measure of performance than growth in customer numbers.

Analysts said Moviles also faced a problem in Germany, where it had bought a third-generation licence for more than eight billion euros and now had to build a network from scratch capable of competing with larger, established players such as Deutsche Telekom and Vodafone.

In another possible downside, analysts believe Moviles is at risk of attracting the attention of competition regulators in its home market.

Low debts

Moviles shares rose modestly in advance of the results announcement but then slipped back as investors digested the figures.

It was the first time the company had reported results since its flotation after an initial public offering last November.

Shares in the company are now trading about 25% below the flotation price amid wider concerns by telecoms investors about the levels of debt many wireless operators are carrying.

Analysts said that although Moviles' share price had not been immune to this deteriorating sentiment, the company had relatively low debts, leaving it better placed than many of its rivals.

This was because many of its acquisitions had been made with share swaps rather than borrowed cash.

Merger speculation

Telefonica recently combined its Brazil interests with Portugal Telecom in a move widely expected to lead to a deeper alliance.

Speculation has also grown in recent weeks about a possible merger between Moviles and British Telecom, as operators seek to expand their global "footprints" and share the risk of 3G investments.

Telecom Italia Mobile might also be a candidate for a tie-up - despite on Monday saying it would go it alone - as well as KPN Mobile of the Netherlands, which last year held unsuccessful merger talks with Moviles.

A research group earlier this year predicted that European mobile telecoms would be controlled by five groups by 2015, four of which would be Deutsche Telekom, France Telecom, Vodafone and BT.