Telecom Italia Raises Cost-Cut Target to $1.8 Billion by 2018

  • The savings will come from operational costs, capital spending
  • First-quarter Ebitda slides 16 percent, sales drop 12 percent

Telecom Italia SpA, Italy’s largest phone company, almost tripled its target for reducing expenses to 1.6 billion euros ($1.8 billion) by 2018 in a move pushed by new Chief Executive Officer Flavio Cattaneo, who aims to improve profitability at the former state-owned carrier.

The cuts will include 800 million euros in operating costs and 800 million euros in capital spending, the company said. The carrier’s previous cost-cut target was 600 million euros.

“Our goal is combining acceleration in developing ultra-broadband networks -- keeping coverage and quality level of services -- with a careful cost-control,” Cattaneo said in the company’s first-quarter earnings statement late Friday.

Earnings before interest, taxes, depreciation and amortization fell 16 percent to 1.71 billion euros, the company said. Analysts had predicted 1.83 billion euros, the average of estimates compiled by Bloomberg. Sales declined 12 percent to 4.4 billion euros, compared with projections for 4.53 billion euros.

While the company is grappling with shrinking phone bills in a home market dogged by competition, Telecom Italia is facing its toughest battle in Brazil. Its unit there, Tim Participacoes SA, competes with Telefonica SA’s Vivo, the country’s biggest mobile carrier, amid Brazil’s deepest recession in at least a century. This week, Tim named Stefano De Angelis its new chief executive officer replacing Rodrigo Abreu.

Telecom Italia named Cattaneo CEO in March, turning to a media industry veteran to implement a turnaround. His predecessor, Marco Patuano, was ousted after clashing with the company’s largest shareholder, Vivendi SA, the French company controlled by billionaire Chairman Vincent Bollore.

In Italy, where the company generates about 70 percent of sales, Telecom Italia has submitted a bid to buy control of fiber-carrier Metroweb SpA, rivaling an offer by Enel SpA, Italy’s biggest utility. Control of Metroweb would give either Enel or Telecom Italia a leg up in the race to build faster networks.

Domestic consumer revenue rose 2 percent to 1.76 billion euros in the quarter. Net debt fell to 27.1 billion euros, 139 million euros less than at the end of 2015.

Telecom Italia shares rose 1.1 percent to 0.85 euro in Milan on Friday. The stock has lost 28 percent this year, giving the company a market value of 15.5 billion euros.

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