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* Revenues drop in line with estimates, net profit up
* Weak Latin American currencies, Europe sales weighed
* Growth in Brazil, data, Spain quad-play encouraging
* Sticks to debt reduction, dividend but eyes higher capex
By Julien Toyer
MADRID, Feb 27 (Reuters) - Spain's Telefonica saidon Thursday it was seeing signs of a rebound as it posted 2013results, but analysts warned it remained vulnerable to LatinAmerican jitters and still tough European markets.
Europe's biggest telecom operator by revenue, emerging froma two-year plan which saw it sell assets and cut its dividend topare high debt and regain financial muscle, returned to organicoperating income growth last year, with activity gathering pacein the final quarter.
A solid performance in all Latin American markets, which nowaccount for 51 percent of the group's sales, and sustainedgrowth in mobile data consumption were the main elements of theimprovement.
But weaker currencies in Brazil, Argentina and Venezueladented revenues and operating income, while margins in Europealso came under pressure.
Unfavourable exchange rates are likely to remainTelefonica's main problem in 2014. Europe, however, offersglimmers of hope as economic recovery is expected to accelerate,consumers switch to optic fibre and superfast 4G mobileconnections, and regulators could allow consolidation to takeplace, potentially reducing price wars.
"We expect Spanish (operating income) to continue to improvewhile the company benefits from European consolidation in theUK, Germany and possibly also Spain going some way to offsetdowngrades that are likely to come from weak Latin Americancurrencies and another Venezuelan devaluation," said Bersteinanalysts in a note.
Revenues came in at 57.06 billion euros ($77.98 billion), inline with a Reuters forecast for 56.99 billion euros, andoperating income (OIBDA) was 19.08 billion euros, down 10.1percent but also in line with a forecast 18.96 billion euros.
Net profit jumped 16.9 percent to 4.59 billion euros, afterfalling in 2012 due to steep writedowns.
Other analysts, though, were more cautious on any prospectof a quick turnaround in mature European markets as the cost ofbuilding up new networks will initially pressure results andfierce competition between operators will keep hitting revenues.
Shares in Telefonica were down 2.5 percent at around 1340GMT, underperforming both Spain's blue-chip Ibex index and European peers.
CAPEX
Telefonica has been involved in a price war in its Spanishhome market since it launched an aggressive quadruple-play offerbundling together mobile and fixed telephone, Internet and TVservices more than a year ago.
This has eroded traditionally high margins and pressuredprofits, which the company hopes to recover thanks to new,premium data and TV services.
As with European peers Vodafone, Orange and Deutsche Telekom, however, Telefonica will haveto spend billions of euros in building up new optic fibre andsuperfast 4G mobile networks to carry these offers.
It raised its objective of capEx/sales ratio to 15.5-16percent this year compared to 14.5 percent in 2013.
The move was made possible by the completion of itsdebt-cutting plan. Net debt dropped to 45.38 billion euros atthe end of 2013, beating a goal to get it below 47 billioneuros.
It said it would reduce it below 43 billion euros byyear-end and reiterated it hoped to make savings worth 1.5billion euros by centralising the majority of its business unitsunder a single manager based in Madrid.
In a sign that it would remain financially prudent ahead ofexpected market consolidation in Europe and Latin America,Telefonica also said 0.35 euro of its unchanged 0.75 euro pershare dividend would now come in the form of shares comparedwith an all-cash payout in 2013.
Telefonica Deutschland said it expected to receiveobjections on Wednesday from the European Commission to its 8.6billion euro acquisition of KPN's German E-Plus unit.
Telefonica is also in the middle of a strategy review inBrazil, where it has been given until mid-2015 by the localregulator to loosen its grip on the local market.
Both moves are closely watched as possible triggers for awave of mergers and acquisitions involving the world's biggesttelecoms operators.
Chairman Cesar Alierta said he was confident that what hecalled existing, outdated telecoms regulations would be updatedin order to create single digital telecoms markets in Europe,Latin America and the rest of the world.
"This is going to make a tremendous difference for revenuesand the value chain in the near future," he said. "And this isgoing to happen very soon."
