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Telecom Italia Forecasts Some Pain Relief

Telecom Italia has said it expects revenues to fall in its domestic market this year after reporting its first net profit since 2010.

Growth in the take-up of mobile data services will not be sufficient to offset a decline in the traditional voice business, according to the Italian incumbent, although overall revenues are expected to fall "considerably less" than in previous years.

Telecom Italia (TIM) reported preliminary figures last month, revealing that both revenues and EBITDA had dropped by about 8% in 2014, to €21.6 billion (US$23.1 billion) and €8.8 billion ($9.4 billion) respectively. (See Telecom Italia to Invest €3B in Fiber to Spur Growth and Telecom Italia Rejigs Services in Recovery Bid.)

In a statement published late Thursday, it flagged a net profit attributable to owners of the parent of €1.35 billion ($1.44 billion) for the full year, having reported a net loss of €674 million ($720 million) in 2013, when it was hit by impairment charges.

As when reporting results for 2013, the operator said it would not distribute dividends to ordinary shareholders but pay the minimum rate of €0.0275 ($0.03) per share to privileged "savings shareholders" for a total payout of around €166 million ($177 million).

Telecom Italia's share price had dipped by around 1% during early-hours trading on the Milan stock exchange Friday morning but was still 45% higher than in October, its lowest point during the past year.

When announcing preliminary results last month, current CEO Marco Patuano unveiled an ambitious spending plan aimed at stabilizing EBITDA in Italy next year and returning the operator to growth in 2017.

During the next three years, Patuano will inject €10 billion ($10.7 billion) into capital expenditure in Italy -- up from the €8.9 billion ($9.5 billion) Telecom Italia spent over the 2012-14 period -- with nearly €3 billion ($3.2 billion) earmarked for investment in fiber broadband networks and another €900 million ($961 million) to go towards 4G rollout.

The goal is to make fiber networks available to 75% of Italy's population by the end of 2017 while extending the coverage of 4G infrastructure to 95% of the population.

Although 4G coverage reached 80% by the end of 2014, fiber services were then available to just 29% of Italian consumers.


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Even so, competition is growing in the market for superfast broadband services, with rivals such as Vodafone Italy plotting their own fiber investments. Late Thursday Vodafone Group plc (NYSE: VOD) was reported to have begun takeover talks with Metroweb SpA , which operates a fiber network in Milan and has previously been courted by Telecom Italia.

Mobile operators 3 Italia and Wind Telecomunicazioni SpA are also holding discussions about a possible merger that would turn Italy into a three-player mobile market, with Telecom Italia and Vodafone competing against the new combined entity. The move could hit opposition from national regulatory authorities -- which have resisted such consolidation elsewhere -- but would relieve some of the pricing pressure that has been evident in the mobile market.

Telecom Italia also plans to spend €4 billion ($4.3 billion) over the next three years in Brazil, where it is keen to extend the availability of both 3G and 4G services. Capital expenditure in Brazil over the 2012-14 period came to more than €5 billion.

Besides announcing net profits, Telecom Italia also announced it would raise another €2 billion ($2.1 billion) to refinance its borrowings by issuing new bonds.

The operator's net debt of €26.7 billion ($28.5 billion) at the end of 2014 worked out at more than three times its annual EBITDA. Patuano aims to reduce the ratio to about 2.5 by the end of 2017.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

iainmorris 3/20/2015 | 9:53:45 AM
Quad-play moves Telecom Italia has said it is keen to move away from price-based competition but it is also thought to be quite keen on ramping up its quad-play activities, and service bundling generally entails discounts. It's hard to reconcile the two objectives although the operator will surely have more to say about its converged-services strategy in the months ahead. 
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