Telecom Italia Quarterly Earnings Advance on Cost Reductions

  • Italian carrier predicts domestic full-year earnings growth
  • Domestic mobile business shows improved trend, CEO says

Telecom Italia SpA posted the steepest increase in domestic quarterly earnings in seven years in a sign that Chief Executive Officer Flavio Cattaneo’s push into more lucrative broadband services and accelerated cost cuts are starting to pay off. The stock rose the most in nine months.

Earnings before interest, taxes, depreciation and amortization rose about 25 percent to 2.01 billion euros ($2.2 billion) in the second quarter, the former Italian phone monopoly said in a statement late Tuesday. The number was bolstered by the reversal of a 66 million-euro provision for employee bonuses that weren’t paid. In organic terms, the increase was 4 percent, the company said.

In Italy “the mobile segment has improved its development trend and the landline segment has shown important signs of recovery,” Cattaneo said in the statement announcing the company’s second-quarter results.

Telecom Italia appointed Cattaneo in March, turning to a media industry veteran to implement a turnaround. Cattaneo almost tripled targets for reducing expenses to 1.6 billion euros by 2018 as he works to improve profitability at the carrier. With the support of Vivendi SA, the company’s biggest shareholder, the CEO is focusing on boosting fast broadband networks in a country where average landline internet speeds are among lowest in Europe.

The stock rose as much as 10 percent in Milan on Wednesday, the steepest intraday advance since Oct. 29, and was trading up 8.9 percent to 0.75 euros at 12:07 p.m., giving the company a market value of 13.9 billion euros.

While the carrier has grappled with shrinking phone bills in a competitive domestic market, 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 operator, and is contending with Brazil’s deepest recession in at least a century. In Italy, Telecom Italia is being challenged in fiber broadband networks by the country’s largest utility, Enel SpA.

On a conference call with analysts on Wednesday, Cattaneo reiterated that Tim is a strategic asset and not for sale.

CK Hutchison Holdings Ltd. and VimpelCom Ltd. agreed earlier this month to sell spectrum and wireless sites to Iliad SA to gain European Union approval for a plan to merge their Italian units. The combination would create Italy’s largest wireless provider, and the companies have submitted a new package of concessions to the EU to get the deal approved.

Sales at Telecom Italia declined 10 percent to 9.1 billion euros. Italy’s biggest carrier predicts ‘‘low single-digit growth” in Ebitda in Italy this year. The company’s previous forecast was for “stabilizing” earnings as early as 2016.

Telecom Italia also said it agreed with Swisscom AG’s Italian unit, Fastweb SpA, to accelerate the building of domestic fiber broadband networks. Telecom Italia will own 80 percent of the venture, while Fastweb will hold the remainder. The companies plan to bring fiber to 29 cities in Italy by 2018, according to a statement. Telecom Italia also purchased Fastweb’s fiber connections to 650,000 homes.

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