Business Transformation

Telecom Italia Molders as Shareholders Feud

A second front
If this were not distracting enough, a second front has opened up with news this week that Italy's government aims to buy a 5% stake in Telecom Italia. After details of the plan emerged, Telecom Italia's share price closed up nearly 6% in Milan on Thursday. At about €0.73 ($0.90) at the time of writing, it was trading more than 5% higher on Friday afternoon.

Authorities evidently believe a 5% stake would allow them to influence Telecom Italia's strategic direction. In cahoots with Elliott, which is reported to have recently met with Italian state lender CDP, they could mount an even bigger challenge to Vivendi. Adding to the intrigue is the fact that CDP is already a major stakeholder in Open Fiber, the infrastructure business that could feasibly be merged with NetCo in future.

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Despite its historical reputation for bricks-and-mortar bumbling, Telecom Italia has been on a performance roll. Reporting its 2017 results in early March, the operator revealed that group sales rose 4.2%, to €19.8 billion ($24.2 billion), thanks to good business in both Italy and its overseas market of Brazil. At home, its recent investments have made fiber-based services available to 77% of Italians, while its 4G network covers 98% of them. Its latest digitalization targets are to get 85% of customers using self-care apps and reduce "human-operated interactions" by 30%. It is also aiming for a turnaround at its wholesale business, which saw revenues drop 5.1% in 2017, through investment in automation and digital tools.

But without stable management and clear focus, there is a risk that Telecom Italia backslides or gets overtaken by more agile competitors. Its earlier broadband shortcomings spurred energy company Enel SpA to wade into the fiber market in 2015, setting up the venture that is today's Open Fiber. Spotting another opportunity in Italy's mobile market, France's Iliad (Euronext: ILD) is now poised to launch a new mobile service in the summer. While it may struggle to replicate its success in France, where its market entry in 2012 triggered a price war, Iliad will capitalize on any sign of Telecom Italia weakness. An enduring shareholder feud is the last thing the incumbent needs. (See Iliad's Italian Odyssey May Be a Hard Slog.)

— Iain Morris, News Editor, Light Reading

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