Telecom Italia earnings decline on stiff domestic competition

Bloomberg

Telecom Italia SpA is near to signing a memorandum of understanding with state lender Cassa Depositi e Prestiti SpA — the carrier’s second-largest investor — for a national single-network project that would merge the company’s landline grid with the one owned by smaller rival Open Fiber.
“I’m confident we can reach an agreement on the single network in the next few days,” Chief Executive Officer Pietro Labriola said on a conference call with reporters on Thursday. It’s a very complex project but there’s a convergence of interest on it,” he said. KKR & Co. as well as other shareholders could join the MOU, he said.
Telecom Italia shares traded up 1.8% in Milan on Thursday, giving the company a market value of $6.2 billion.
The company reported lower first-quarter results amid fresh competition for ultrafast fiber services in domestic market from France’s Iliad SA.
Organic earnings before interest, taxes, depreciation and amortisation fell 13% to 1.39 billion euros in the quarter, the former telecommunications monopoly said. That was below the 1.45 billion-euro average of analyst estimates compiled by Bloomberg. Revenue declined by 4.5% on an organic basis to 3.64 billion euros, compared with estimates of 3.67 billion euros.
During the quarter Telecom Italia “maintained a premium positioning strategy despite the difficult competition,” the company said in a statement. The phone carrier also suffered from the absence of government incentives for consumers.
, “which had a very positive impact on the performance of the same period last year.”
Telecom Italia reported a loss of 204 million euros for the period, but generated free cash flow of more than 120 million euros after lease costs.
In January, Iliad started a new commercial service in Italy offering landline fiber connections with speeds of up to 5 gigabits for about 16 euros per month, putting pressure on other domestic providers. Telecom Italia is also focusing on fast-growing businesses such as cloud services and data centers.
Italy’s largest phone company, Telecom Italia has been struggling for two decades. Crippled by a debt pile of more than 30 billion euros — inherited from a leveraged buyout in late 1990s — the company has had five chief executive officers in about six years.
Telecom Italia’s new CEO Pietro Labriola, a 54-year-old industry veteran appointed earlier this year, has written off about 9 billion euros in impaired assets. In addition, he has drawn up a 2022-2024 plan to shake up the company by separating the landline network into a new unit called NetCo focused on wholesale services, with the goal of gaining a solid revenue stream from regulated tariffs. The plan also envisions all commercial services spun off into a separate unit called ServCo.
Labriola’s strategy calls for landline assets to be merged with those of smaller, state-backed rival Open Fiber SpA, aligning Telecom Italia with a government goal of building a single, national fiber network while avoiding duplicated investments. The company also recently rebuffed a 10.8 billion-euro takeover proposal by KKR & Co. after refusing the US investment firm’s due diligence requests.