November 1, 2016 / 2:52 PM / in 2 years

UPDATE 1-TIM Brasil seeks faster post-paid migration to revive margins

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SAO PAULO, Nov 1 (Reuters) - TIM Participacoes SA Chief Executive Officer Stefano De Angelis vowed to accelerate the migration of pre-paid clients into post-paid while keeping sales expenses in check, one of his initiatives to revive profits at Brazil’s No. 2 wireless carrier.

In a conference call to discuss third-quarter results on Tuesday, De Angelis promised to streamline operations to contain cost pressure. One key step to accelerate migration is creating incentives for clients to spend more by offering more, higher-priced services.

His remarks underscore management optimism with recent gains in TIM’s average revenue per user, a metric known as ARPU that rose between July and September for the third straight quarter. The base of post-paid customers reached a nine-year high of 22.5 percent last quarter without yet provoking a rise in sales, general and administrative expenses.

At the core of the strategy, which involves stricter capital spending discipline too, is to put profitability ahead of market share, he told investors in the call. Earnings before interest, tax, depreciation and amortization - a key gauge of profitability known as EBITDA - ended last quarter at 32 percent of revenue, down from a margin of 38 percent in the same quarter a year ago.

“The focus on profitability is related to the needs of the industry as a whole,” he said, noting that the strategy is essential to maintain the ability of TIM and other carriers to expand services and comply with government-mandated investments.

Shares in TIM rose as much as 7.2 percent in early morning trade, the steepest intraday increase since July 2015.

The carrier known as TIM Brasil beat third-quarter profit estimates despite 49 percent in net income from a year earlier. Net income fell to 184 million reais, beating an average consensus estimate of 102.83 million reais.

De Angelis mentioned plans to extend TIM’s 4G network to 1,000 Brazilian cities this year, 24 percent more than last year. At the same time, 3G coverage will reach 2,800 cities under the company’s expansion plan, reaching an additional 20 million people in three states.

TIM Brasil plans to cut 1.7 billion reais worth of costs and expenses through 2018, De Angelis said. In the first phase of the cost-cutting program, TIM Brasil focused on renegotiating supplier contracts and a second phase will involve streamlining commercial processes, he said. (Reporting by Ana Mano; Editing by Chizu Nomiyama and Alistair Bell)

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