Telefonica, Thursday said net profit fell 20% in the second quarter after the 2007 figure was boosted by an asset sale, but shares rose in early trade as the company showed resilience to the economic slowdown in Spain.

Madrid-based Telefonica, Spain's largest telecommunications company, said net profit for the second quarter fell to EUR2.06 billion, from EUR2.57 billion a year earlier, beating analysts' expectations for net profit of EUR1.74 million.

Telefonica booked a EUR1.3 billion gain last year from the sale of UK radio operator Airwave.

"The results are solid, and even a bit better than expected in Europe and Latin America", Madrid-based brokerage Banesto said in a research note.

Banesto said the company was on track to meet guidance in coming quarters and so far isn't showing weakness from an economic slowdown in Spain. Banesto rates Telefonica at buy with a EUR22.14 target price.

Telefonica's shares reacted well to the results, and at 0706 GMT were trading up 1.6%, or EUR0.27, to EUR16.93, outperforming an overall higher market.

Last week, Telefonica's shares fell 5.6% in a single day after the U.K.'s Vodafone Group reported a steep decline in mobile revenue in Spain. However, Telefonica avoided a significant slowdown, with mobile service revenue up 0.5% to EUR2.13 billion, excluding handset sales.

Total revenue for the second quarter in Spain rose 0.8% to EUR5.20 billion.

In the U.K., another major market, total revenue fell 4.8% to EUR1.74 billion.

Operational income before depreciation and amortization fell 6.8% to EUR5.75 billion for the period. Operational income before depreciation and amortization is Telefonica's preferred measure of profitability.

Revenue rose 1.2% to EUR14.25 billion.

Telefonica is undergoing a restructuring program as it makes cuts in its shrinking domestic wireline business and refocuses on mobile telephony and high-speed Internet. The company is also shifting focus towards other European and Latin American high-growth markets, investing in networks in both regions.

In Spain, Telefonica has been testing a high-speed fiber optic network it plans to roll out in order to provide faster Internet speeds in its home market.

 Telefonica had 182.7 million worldwide mobile customers at the end of June, 54% more than a year ago. Brazil, Mexico, Peru and Germany were the countries that picked up the most new mobile clients, Telefonica said.

Total broadband customers rose 25% from a year ago to 11.5 million as the company migrated current Internet users to high-speed connections and added new ones.

Telefonica said worldwide it had 245.1 million customers at the end of June, 15% more than a year earlier.

Source:Dow Jones