Telecom Italia's mobile business has been crumbling like a Roman ruin since long before the arrival of a certain nasty virus. This time in 2018, a breakdown of figures shows the Italian operator laid claim to nearly 23.2 million mobile customers of the human variety. By the end of March 2020, the number was down to 20.4 million, and revenues had fallen with it.

But if the decline started long before coronavirus, the pandemic appears to have hastened it. So far this year, nearly 600,000 mobile customers have decided Telecom Italia's service is not for them, accounting for more than a fifth of losses in the last eight quarters. The story is not much cheerier at the operator's fixed-line business, either. That lost 185,000 retail lines and 48,000 wholesale lines in the first quarter. And despite customer growth at Telecom Italia's consumer broadband business, customers are spending quite a bit less. Average monthly revenues per broadband user dropped 11.5%, to €25.60 (US$27.99), compared with the year-earlier period.

It all helps to explain some troubling dips in headline first-quarter figures. Overall revenues fell 8.4%, to just less than €4 billion ($4.4 billion), and operating profit was down 18.2%, to €533 million ($583 million). Telecom Italia looked past these figures, preferring to highlight debt reduction and a trebling in net profit, to nearly €600 million ($656 million), after the divestment of its Italian towers. Yet shareholders were not in a forgiving mood: The company's stock fell more than 8% during afternoon trading in Milan. It is now 40% off a 12-month high achieved in November last year. In late 2015, it was worth more than 3.5 times as much.

If there were good news on the operational front, it is that a program of cuts has helped to boost the earnings margin, which now sits at 43.8% (before interest, tax, depreciation and amortization), up from 43.5% a year earlier. On this basis, Telecom Italia appears to be one of the most profitable operators in Europe. Germany's Deutsche Telekom, the region's largest service provider, reported a margin of just 34.8% last week.

Staff have paid the price of an efficiency drive at Telecom Italia. In a period of slightly more than four years, about 11,000 jobs have disappeared, roughly 17% of the total. Are the cuts now finished? The pace of the reduction clearly slowed in the first three months of 2020, when headcount fell by just 229, to 54,969 employees. Yet Telecom Italia says it will continue to pursue "early retirement" for another 2,000 workers in the first six months of the current fiscal year. Unfortunately, after the hammering it has taken on the sales front, the company made less per employee last year than it did in 2017.

Besides job cuts, Telecom Italia's current strategy involves lopping off any part of itself that might look tastier to investors as a standalone unit or coupled with outside assets. In March, it lumped its mobile towers together with Vodafone's under the Inwit brand, ignoring those who think ceding control of infrastructure assets is a dimwit move. Telecom Italia looks set to give up even more ground, too. It is now in exclusive talks with an investor consortium calling itself Arcadian about the sale of a minority stake in TIM Tower HoldCo, the holding company that owns Telecom Italia's 33.2% stake in Inwit.

Also due for a "carve-out" by October is Telecom Italia's cloud and data center business, following an agreement Telecom Italia struck with Google last year. The plan is to combine Telecom Italia's connectivity with Google's cloud and edge expertise. Canny partnership? Or dangerous alliance with a predatory technology giant that consumes anything in its path? While that is up for debate, Telecom Italia is eyeing €1 billion ($1.1 billion) in annual revenues by 2024, and €400 million ($438 million) in earnings.

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For several weeks, Telecom Italia has been in discussions with KKR, another investment firm, about the sale of a stake in its fixed-line business, too. Eventually, it may try to merge this unit with Open Fiber, a broadband business backed by the Italian state, to create a single nationwide network based on fiber-optic technology. In this instance, however, it has reportedly ruled out any arrangement that would not leave it in control of a merged entity. Talks with Open Fiber have so far led nowhere.

The good news is that Telecom Italia's debts are slightly less mountainous following the recent divestment activity. In 2018, the company had €23.3 billion ($25.5 billion) in net financial debt. By the end of March, the figure had fallen to about €21.7 billion ($23.7 billion). After deals with Arcadian and KKR, Telecom Italia estimates it will have net borrowings of just €17.7 billion ($19.4 billion). From a balance sheet perspective, this would put the Italian operator in its healthiest position for years, freeing up funds for investment.

The immediate outlook, though, is not exactly bellissimo. After the first-quarter setback, Telecom Italia is anticipating a shortfall in sales and earnings this year, which it aims to offset through what it calls "incremental efficiencies" in capital and operating expenditure. That sounds like financial gobbledygook for additional cuts. For the first three months of 2020, total operating costs fell one-tenth, to about €1.7 billion ($1.9 billion), compared with the year-earlier quarter. Investors may welcome such thriftiness if Telecom Italia can prove it does not affect the sales performance. But long-sighted shareholders will be warier of a reduction in capital expenditure, which fell 9% in Italy in the first quarter, to €414 million ($453 million). If rivals turn out to be less stingy, Telecom Italia risks falling behind.

Executives probably think they deserve some sympathy because of coronavirus. Amid lockdown restrictions, stores were closed, and it was difficult to carry out some work. But the virus does not explain why Telecom Italia did so badly alongside Iliad Italia, which picked up another 525,000 mobile customers between January and March, despite all the disruption. As company bosses crack on with their latest financial engineering, they are running out of excuses for this operator's persistently dire performance.

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— Iain Morris, International Editor, Light Reading