Italian telecom incumbent is evaluating strategic options for subsidiaries after weighing the impact of a forthcoming 5G spectrum auction.

Iain Morris, International Editor

July 24, 2018

4 Min Read
Telecom Italia Says 5G Auction May Force It to Sell Assets

The costs of an upcoming 5G auction could force Telecom Italia to sell subsidiaries, the operator said in an earnings statement today while confirming the divestment of a majority stake in Persidera, an Italian broadcaster, will go ahead.

Reporting financial results for the April-to-June quarter, the Italian phone incumbent said it had started evaluating strategic options for subsidiaries after looking at the financial implications of a 5G spectrum auction scheduled for September.

Telecom Italia agreed to sell its 70% stake in Persidera last year, with press reports valuing the broadcaster at €350 million to €400 million ($409 million to $467 million). At the time, the operator was under pressure from regulatory authorities worried about the growing influence of French shareholder Vivendi in the Italian market.

Telecom Italia owns a mobile operator in Brazil with nearly 57 million customers as well as other fixed and mobile assets. In March, it approved plans to spin off its Italian fixed-line network and run it as a wholly owned but legally separate entity. (See Telecom Italia to Spin Off Fixed Lines, Increase Automation.)

There has been speculation those assets might eventually get merged with government-owned broadband infrastructure to create a nationwide, high-speed wholesale network.

Activist investor Elliott, which took control of the Telecom Italia board from Vivendi in May, has previously raised the possibility of selling assets, including a stake in the networks business. (See Telecom Italia Molders as Shareholders Feud.)

Sparkle, Telecom Italia's submarine division, seems an obvious candidate for divestment after CEO Amos Genish previously said it was not "core" to the operator's business. The Brazilian subsidiary and towers unit INWIT are both deemed to have strategic value, Genish said in May.

European operators have expressed concern about the fees that regulators may charge for the new spectrum licenses needed to support 5G, a next-generation mobile network technology.

Europe's biggest telcos spent tens of billions of dollars during 3G auctions at the turn of the century, driving up debts and constraining their ability to invest in 3G networks.

While 5G licensing is set to be a more sober affair, UK operators spent £1.4 billion ($1.8 billion) during a recent spectrum auction, exceeding analyst expectations. Italy's regulator, meanwhile, has indicated it expects to raise at least €2.5 billion ($2.9 billion) from the sale of 5G airwaves. (See UK's £1.4B '5G' auction looks bad for industry.)

Telecom Italia's spending power may be limited by its relatively weak financial position: At €26 billion ($30.4 billion), its net debt was equal to about three times its earnings (before interest, tax, depreciation and amortization) in 2017, making it one of Europe's most indebted service providers on that basis.

The operator is also under renewed competitive pressure in the Italian mobile market following the launch of services by Iliad, a French operator, in the recent quarter.

Ratings agency Moody's thinks the arrival of Iliad, which has captured more than 1 million customers in its first 50 days of operation, will trigger a 4-5% drop in service revenues at Telecom Italia next year. (See Iliad Grabs 1M Customers by Day 50 of Italian Odyssey.)

For all the latest news from the wireless networking and services sector, check out our dedicated Mobile content channel here on Light Reading.

But the Italian incumbent appeared to cope with Iliad's entry in the second quarter, with mobile revenues in Italy up 1.6% compared with the year-earlier period. Figures show that Telecom Italia picked up nearly 600,000 mobile subscriptions to finish June with about 31.6 million in total.

First-half revenues across the entire group fell 2.7%, to €9.5 billion ($11.1 billion), compared with the year-earlier period, due mainly to the devaluation of the Brazilian real. Telecom Italia estimates revenues grew 1.5% on a purely organic basis.

Telecom Italia blamed recent agreements with trade unions, billing changes and the impact of the European Union's move to scrap roaming charges for a decline in EBITDA, which fell by 4.8%, to around €3.9 billion ($4.6 billion). Net income was up 3.7%, to €618 million ($722 million). (See Telecom Italia Plots Layoffs, Slams Unions.)

As part of its DigiTIM plan, Telecom Italia is boosting investment in new digital tools and automation technologies, including self-care apps that reduce the need for so-called "human-operated interactions." (See Telecom Italia's AI Tie-Up With Microsoft May Bring Job Cuts.)

The operator recently announced plans to cut some 4,500 jobs, a figure that equals nearly 8% of the total headcount at the end of 2017. Group headcount fell by 86 in the first six months of the year, to 59,343 employees at the end of June.

Nevertheless, Telecom Italia said tight cost controls had led to a year-on-year reduction in capital expenditure, which fell by 18.5%, to €1.68 billion ($1.96 billion), in the first six months of 2017.

— Iain Morris, International Editor, Light Reading

Read more about:

Europe

About the Author(s)

Iain Morris

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).

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like