Bruised Telecom Italia to ax costs after mobile setback | Light Reading

Bruised Telecom Italia to ax costs after mobile setback | Light Reading

Bruised by Iliad’s aggressive assault on its domestic business, Telecom Italia said it would aim to cut costs by a tenth in the next three years after reporting a slump in sales and underlying profits for its last fiscal year.

The Italian incumbent registered a roughly 5% fall in revenues last year, to about 18 billion ($20.4 billion), after losing more than 1.4 million mobile customers in Italy, where it has been under sustained attack by Iliad, a French operator that launched a low-cost mobile service in May 2018.

Revenues from mobile services in Italy fell by 8% in 2019, to about 3.8 billion ($4.3 billion), as Telecom Italia finished the year with about 21 million customers. The average customer’s spending has fallen sharply from about 9.80 ($11.10) per month in 2018 to 8.70 ($9.85) last year as Telecom Italia has responded to Iliad’s campaign.

There was also a decline at Telecom Italia’s huge fixed-line business as more customers ditched their wireline services. Revenues there dropped 5.2%, to about 9.4 billion ($10.7 billion).

The operator said its earnings for 2019 (before interest, tax, depreciation and amortization) were down 2.8%, on a like-for-like basis, to about 7.6 billion ($8.6 billion). It swung to a net profit of about 1.3 billion ($1.5 billion) from a loss of nearly 1.2 billion ($1.4 billion) in 2018, when it was hit by impairment charges.

Like other service providers facing little prospect of sales growth, Telecom Italia has been slashing costs and pooling resources with rivals in a bid to shore up profits. It recently secured approval for a network-sharing scheme with Vodafone that should help to minimize the cost of 5G rollout and has also named KKR as an infrastructure partner for its fiber deployment.

The private equity firm has made a non-binding offer to acquire a 40% stake in Telecom Italia’s fixed-line network before a potential merger with Open Fiber, a government-backed broadband operator deploying high-speed broadband networks in parts of the country.

Last year, Telecom Italia cut more than 2,700 jobs, almost 5% of the total across the entire Telecom Italia business. Staff numbers are down from about 66,000 in 2015 to around 55,200, meaning about 16% of jobs have disappeared over that period.

In its latest strategic plan, Telecom Italia said it was forecasting an increase in the use of “digital and automatic payment methods” that would lead to additional cost savings and churn reduction.

It now aims to reduce costs by 10% in the next three years, up from a previous target of 8%. The latest company guidance is for a slight fall in EBITDA (after leases) this year before a slight increase in 2021 and 2022.

The operator’s strategy is increasingly based around partnerships with Internet and media giants, raising questions about its future role and the size of its addressable market. In the video market, it was recently named as the exclusive Italian partner for Disney’s new streaming service, while in the business sector it has just announced a strategic agreement with Google for the provision of cloud and edge computing services.

Want to know more about 5G? Check out our dedicated 5G content channel here on Light Reading.

On the infrastructure side, Telecom Italia plans to extend all-fiber networks to 40% of the Italian population by 2023 and is targeting nationwide 5G coverage by 2025 or 2026.

Those plans will require additional investments in Italy, where Telecom Italia spent about 2.9 billion ($3.3 billion) in capital expenditure last year a figure that equals about 21% of domestic sales. It expects capex to remain at this high level in 2020.

Telecom Italia’s share price rose 6% in Milan today after sharp declines since February sparked by the impact of coronavirus and the response of Italian authorities to the infection. With Italy under lockdown, shares have fallen 28% since February 17.

The operator said the impact of coronavirus on its own business and plans was “difficult to quantify at the moment and will be a function of the duration, intensity and effectiveness of containment action.”

In Telecom Italia’s other big market of Brazil, sales in local currency rose 2.4%, to about 16.6 Brazilian reais ($3.6 billion), despite line losses. Figures point to an improvement in average revenue per user, up from BRL22.50 ($4.84) per month in 2018 to BRL23.70 ($5.10) last year.

Another positive was a reduction in Telecom Italia’s net debt, down by 1.4 billion ($1.6 billion) since the start of 2019, to about 23.8 billion ($27 billion).

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Iain Morris, International Editor, Light Reading

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