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August 4, 2022
The most positive thing to say about Telecom Italia so far this year is that it planted 4,000 trees between April and June, gladdening novice environmentalists who won't bother to ask what surging use of networks means for energy consumption.
Unfortunately, Italy's greenwashing telecom incumbent plans to uproot and cast aside about 9,000 of its roughly 52,000 employees as it struggles to defend profitability. Customers are fleeing faster than ancient Pompeiians before a pyroclastic flow – some 4.5 million mobile customers in Italy have scarpered in the last four years.
There are no big surprises in Telecom Italia's latest financial report, the company having already exposed itself during a strategy update last month.
But the second-quarter figures do serve to highlight the extent of the rot. While group sales shrank only 1.4% year-on-year, to about €3.9 billion ($4 billion), core earnings (after leases) fell 12.3%, to €1.3 billion ($1.3 billion), despite years of cuts that have already cost thousands of jobs.
Telecom Italia's first-half net loss ballooned to €360 million ($367 million), from €57 million ($58 million) a year earlier.
Figure 1: Telecom Italia's share price ( euro ) (Source: Google Finance)
Net debt has risen, too. At €19.3 billion ($19.7 billion), it is €1.7 billion ($1.7 billion) more than it was at the end of last year, largely because Telecom Italia has recently bought mobile assets from Oi, a Brazilian operator.
This figure is about 4.5 times what Telecom Italia made last year in core earnings, and it expects these to shrink by at least 13% this year.
Shockingly, its net debt is more than four times Telecom Italia's market value of about €4.6 billion ($4.7 billion). Its share price has dropped 73% in five years and halved since the start of 2022.
The remedy for much of this is amputation and further cost-cutting, as far as Telecom Italia's management is concerned.
It is still working on a plan to separate its fixed-line network from the parts of the company that sell services. Preferably, these fixed assets would then be combined with Open Fiber, a government-owned network, creating a giant wholesale operator for Italy.
The difficulty is striking a deal that pleases shareholders and authorities. Negotiations already seem to have dragged on for longer than the Punic Wars.
In Europe, there is not much left for Telecom Italia to sell. It has already spun off its Italian towers, parking these in a joint venture with Vodafone and gradually reducing its indirect stake in this Inwit-branded business to just 15.4%.
A deal announced in April would raise another €1.3 billion ($1.3 billion) for Telecom Italia but leave it with as little as 3% of Inwit.
Hence company enthusiasm for additional cutbacks, or what Telecom Italia in its latest presentation prefers to call "transformation."
Broadly, this entails further investment in automation, centralizing back-office functions, selling real estate, improving supply chain management and leaning on staff to quit (or what Telecom Italia calls offering them early retirement).
Bizarrely, it this week denied there were plans to "initiate any staff reduction procedures" while at the same time publicizing an agreement with trade unions under which up to 2,200 employees will leave this year and next.
Another 1,200 "voluntary early retirements" will also go ahead, following a separate agreement in June. Based on headcount at the end of 2021, this would leave Telecom Italia with a total international workforce of about 48,500 employees. As recently as 2015, the company employed nearly 66,000 people.
But the details of the company's fixed-line divestment plan point to even more sweeping cuts.
According to that, Telecom Italia envisages slashing 3,000 jobs at its Italian consumer unit by 2026 and a whopping 6,400 at NetCo, the working name for the fixed-line network business, by 2030. The intended recruitment of 200 jobs at the smallish but decently performing enterprise unit makes for a net reduction of 9,200 positions.
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Investment needs remain substantial as Telecom Italia rolls out its full-fiber and 5G networks. Capital expenditure across the group came to €974 million ($992 million) between April and June, down 13% year-on-year but still equal to about a quarter of sales.
At NetCo alone, Telecom Italia predicts annual capex will rise 38% between 2021 and 2025, to around €2.2 billion ($2.2 billion). Last year, only 25% of Italian premises were covered by the operator's full-fiber network. Its goal is to hit 65% of them by 2028.
A succession of bosses at the company have not been able to reinvigorate Telecom Italia despite years of trying. Bickering shareholders and clumsy Italian regulators bear much of the blame for the condition of what used to be one of Europe's most valuable stocks.
Spinning off the fixed-line network is hardly the most imaginative solution to its problems, but it might at least address some of the financial woes. In the current inflationary environment, that looks more important than ever.
— Iain Morris, International Editor, Light Reading
Read more about:Europe
International Editor, Light Reading
Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).
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