Telecom Italia First-Half Earnings Drop as Prices Fall

Telecom Italia SpA, Italy’s largest phone company, reported a 7.6 percent drop in first-half earnings as domestic revenue continued to decline amid competition in the wireless market.

Earnings before interest, taxes, depreciation and amortization fell to 4.35 billion euros ($5.8 billion), the Milan-based company said today in a statement. Analysts predicted 4.36 billion euros, according to the average of estimates compiled by Bloomberg. Sales declined 11 percent to 10.6 billion euros, in line with the average estimate.

While struggling to recover sales in its home market where phone charges are shrinking amid competition, Telecom Italia is facing its hardest battle in Latin America. Its Brazil unit Tim Participacoes SA competes with Telefonica SA’s Vivo, the country’s biggest mobile carrier, which has offered to buy Vivendi SA unit GVT to add broadband users.

“Telecom Italia earnings show some shy, first signals of recovery in the domestic market thanks to ultrabroadband services,” Carlo Alberto Carnevale Maffe, a professor of business strategy at Milan’s Bocconi University, said in a phone interview. There are bigger challenges in Brazil, where the Italian company should consider matching Madrid-based Telefonica’s offer for GVT and engage Vivendi Chairman Vincent Bollore in a broader alliance between phone and media operators, he said.

Shares Decline

The company’s shares declined 1.8 percent to 81 cents at 1:24 p.m. in Milan trading, for a market value of 15 billion euros.

Telefonica offered 6.7 billion euros for GVT yesterday to expand in a growth market and address antitrust concerns. Vivendi would also get a right to buy a stake of about 8 percent in Telecom Italia from Telefonica, a transaction that would reduce Telefonica’s clout in Brazil’s wireless market.

Telecom Italia may be interested in GVT itself, with Chief Executive Officer Marco Patuano in favor of expanding Tim through an eventual merger, people familiar with the plan said in May.

“I won’t make crazy offers in Brazil and we are reviewing all options for that market,” Patuano said today on conference call with analysts.

Telecom Italia said today it will “continue the in-depth examination of the strategic options in Brazil,” calling it a “core market” for the company. The revenue of Telecom Italia’s Brazil unit fell 16.9 percent in the first half compared with the same period a year earlier and accounted for 28.5 percent of the company’s sales.

In Italy, Patuano is adding services in a bid to boost phone bills in a saturated market. In April, he teamed up with Rupert Murdoch’s Sky Italia SpA for an Internet-television service to attract broadband subscriptions, giving consumers an alternative to satellite TV.

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