Telecom Italia earnings decline on stiff domestic competition

Telecom Italia SpA reported lower first-quarter results amid fresh competition for ultrafast fiber services in its domestic market from France’s Iliad SA.

Organic earnings before interest, taxes, depreciation and amortization fell 13% to 1.39 billion euros ($1.47 billion) in the quarter, the former telecom monopoly said Wednesday. That was below the 1.45 billion-euro average of analysts’ 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.

Last 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 provides. 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 that 30 billion euros — inherited from a leveraged buyout in late 1990s — the company has had five chief executive officers in about six years.

Read more: Telecom Italia Is Said to Seek $3.3 Billion State-Backed Loan

Appointed earlier this year, Telecom Italia’s new CEO Pietro Labriola, a 54-year-old industry veteran, wrote 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 U.S. investment firm’s due diligence requests.

As part of Labriola’s plan, state lender Cassa Depositi e Prestiti SpA, Telecom Italia’s second-largest investor, would get a majority stake in the company’s fixed network assets, people familiar with the matter said earlier this year. Cassa Depositi, known as CDP, is also the controlling shareholder of Open Fiber.

Last month, Telecom Italia signed a nondisclosure agreement with CDP to start preliminary discussions on integrating its network with that of Open Fiber. The next step is inking a memorandum of understanding that KKR and other shareholders could eventually join as early as this month, people familiar with the matter said last month. About two years ago, KKR invested 1.8 billion euros in Telecom Italia’s fiber unit FiberCop.

The results were announced after markets closed in Milan. Telecom Italia were little changed. The company to hold its capital market day on July 7. Bloomberg