Telecom Italia Mobile Rings Up Profits

There is life after saturation, declares TIM Chief Executive Marco De Benedetti, who is seeing financial growth without adding customers

Laura D'Angelo, an 18-year-old shop assistant in Milan, watches Big Brother, visits chat rooms, and sends snapshots to her friends -- all on her cell phone. Tuned in to the various promotional deals that mobile-phone operators offer, she recently signed up for "Maxxi TIM Messaggi," which allows her to send 400 text messages and 100 picture messages per month at a monthly charge of $12. Although all four mobile operators active in Italy have aggressive marketing strategies, Italians of Laura's age are most impressed by Telecom Italia Mobile, or TIM. "They're always coming up with new offers," says D'Angelo.

Customers such as D'Angelo helped make TIM one of the most profitable mobile-phone companies in Europe in 2003. According to E-Media, a Milan-based researcher, TIM's operating margin last year was 32.1% on sales of $14.6 billion, followed by Vodafone Group PLC (VOD ) at 32%, and Orange at 23.8%.

TIM's success should hearten mobile operators around the world who worry that maturing markets mean an end to the glory days. With 98% of Italians already owning cell phones, TIM's revenue growth in Italy is coming not from new users, but from old users talking more and spending more on new services such as messaging, video, wireless Web, and PC connections. In the first quarter, TIM managed to squeeze 5% more revenue out of each customer than it had in the first quarter of 2003. Chief Executive Marco De Benedetti says this proves that the industry, and TIM in particular, still has the ability to grow: "There is life after saturation," he says.

Crucial to the company's performance is its commitment to innovation. TIM was the first carrier in the world to offer prepaid cards, and has been one step ahead in picture messages, innovative tariff plans, and services such as emergency advances for prepaid cards. It was the first in Europe to offer real-time TV over cell phones, and last month signed an agreement with Nokia Corp. (NOK ) to test new technologies. "Probably our most distinctive feature is our ability to be a little ahead of the market," says De Benedetti, son of Italian tycoon Carlo De Benedetti. "Here, there is nothing proprietary. Everything is replicable, so the key is time to market."


TIM's profitability also stems from its sheer volume. TIM had the same up-front costs as other operators in its recent 3G rollout but much more traffic than its rivals. "In this business, economies of scale do matter," says De Benedetti. The company has also benefited from an historical quirk: TIM's first competitors in Italy chose not to fight a price war by subsidizing handsets, a phenomenon common to other markets. Thus TIM spends about $36 per customer to market its phones, compared with a European average of $133, according to London consultants Strategy Analytics Ltd.

To keep growing, De Benedetti aims to expand the number of markets TIM operates in, as well as the number of services it offers. TIM is now in only three countries in Europe -- Italy, Greece, and Turkey -- whereas Vodafone has branches in 17 European countries.

To counter Vodafone's advantage in offering Europewide services to higher-value business clients, TIM has banded together with three other large European operators. The FreeMove marketing alliance -- unveiled Mar. 29 by TIM, Spain's Telefónica Móviles, T-Mobile of Germany, and Orange, which operates in France, Britain, and elsewhere -- aims to improve cross-border service and simplify pricing. With nearly 170 million customers in 21 European countries and some 230 million customers worldwide, it tops Vodafone's 130 million subscribers. De Benedetti also has his eye on Brazil, where mobile-phone usage is booming. TIM has 15% of the $6.4 billion market but aims at raising that figure to 25% by 2006. If Brazil's teenagers like to chat and snap pictures as much as D'Angelo does, that should be a slam dunk.

By Maureen Kline in Milan

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