Chilean telecommunication service provider Telefonica Chile (NYSE:CTC) reports second-quarter earnings next Tuesday. Ahead of the call, we'll take an early look into the report.

What analysts say:

  • Buy, sell, or waffle? Only eight analyst firms cover Telefonica Chile. Of these, three offer buy recommendations, while five say hold. None recommends selling the shares. In Motley Fool CAPS, it's a two-star stock based on 46 player ratings.
  • Revenues. The average analyst expects the company to post $281 million in revenues this quarter, almost 12% ahead of the $251 million reported last year.
  • Earnings. Earnings are estimated at $0.05 per share, in line with last year's quarterly numbers.

What management says:
Since selling off the mobile business to Spain's Telefonica (NYSE:TEF) in 2004 for $1 billion, management at Telefonica Chile has been exclusively focused on fixed-line telecommunications in its home country. The Spanish Telefonica also owns 44.9% of Telefonica Chile and holds rights to appoint the majority of its board of directors.

What management does:
Just as U.S. companies such as AT&T (NYSE:T) and Verizon (NYSE:VZ) have seen in the last few years, growth in broadband subscriptions is just about the only thing saving a declining fixed-telephony business at Telefonica Chile. Margins have been gyrating up and down lately as the company transitions from low-margin long distance and telephony into broadband and digital television.

Margins

12/05

3/06

6/06

9/06

12/06

3/07

Gross

35.8%

35.1%

33.3%

34.8%

35.4%

34.6%

Operating

15.0%

14.4%

12.8%

14.0%

14.3%

13.2%

Net

4.3%

3.0%

1.8%

3.9%

4.0%

4.1%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
While Telefonica Chile doesn't have the advantage of a high-growth wireless business to offset the declining fixed-line segments, it is following a tack similar to Citizens Communications (NYSE:CZN) by pushing into broadband and TV services. So far, however, the company has struggled to turn this big ship back toward the high-growth seas and instead continues to report flat revenue.

Even with robust economic growth in Chile, it may take some time for Telefonica Chile to benefit from its move into new markets. Investors interested in the ongoing transformation at the company should watch the development of the broadband and digital TV segments. There should be solid evidence that subscribers are opting for these services as well as bundled plans in response to management's marketing initiatives.

The investment team behind the market-beating Motley Fool Global Gains newsletter service is constantly scouring the investment world for international opportunities. To find out what stocks the team is currently recommending to subscribers for new money, check out an all-access 30-day free trial today.

Fool contributor Dave Mock has a soft spot for Chilean sea bass, and just about every other kind of bass, too. He owns no shares of companies mentioned here. Dave is the author of The Qualcomm Equation. Citizens Communications is an Income Investor recommendation. The Fool has a disclosure policy.