Swisscom finally sees profits from Fastweb

Fastweb posted its year end results last week. Revenues were up 14% year-on-year to €1,433 million. EBITDA was €480 million, 59% up on a year-on-year basis. When removing the effect of extraordinary items, growth in revenues and EBITDA were up 15% and 29%, respectively. For the first time the company recorded a pre-tax profit of €31 million.

Comment:  Fastweb has concluded its first year under Swisscom's ownership. The Swiss incumbent finalised its public tender offer for the Italian operator's shares and acquired control with an 82% stake back in May 2007. It is a positive end to the year, with the company turning in profit for the first time, although this is only a pre-tax profit and despite the fact that revenue and EBITDA growth were fuelled by extraordinary posts, net results and free cash flow were still in the red.

One of the positives for the year has been FastwebTV - a standalone IPTV offering that has pushed IPTV sales up 73% from last year. These sales were largely from the company's existing customer base and consequently helped to stabilise ARPU and increase customer retention.

The challenge for Fastweb is to extend its customer base without eroding ARPU, by targeting high value customers. And it has been successful in this: its customer base grew 26% to 1.3m subscribers. Fastweb acquired a 17% share of the Italian broadband new customer base, and was the second operator, only behind Telecom Italia. At the same time it has been able to maintain ARPU at €722 for residential customers, which represents an erosion of only 5% on its Q1 2007 value.

Network coverage now reaches 50% of the Italian population, with a FTTH base in Northern Italy and unbundling elsewhere. Fastweb has not made any explicit reference of plans to extend its FTTx footprint in the rest of the country. A mix of regulatory and commercial uncertainties is delaying fibre investment in Europe. For a company that has just turned profitable it is difficult to expect such significant and investment commitment. Priority is now given to revenue and profit generation.

Back in December Fastweb and 3Italy signed an MVNO deal, with the expected launch to be in Q2 2008. While most MVNO offers seem to target the no-frills segments, it will be interesting to see how the broadband proposition, which both companies embrace, will be channelled through in the Italian mobile market.

Looking forward, Fastweb expects to follow the same path in 2008, growing its revenues by 15% and EBITDA by 29% in line with the organic growth it has achieved this year, and most importantly turning profitable and free cash flow positive. Possible areas of growth are the Public Administration sector, where Fastweb won a framework contract in 2007 that it has failed to turn into quick cash so far; the IPTV offering, and possibly broadband. The Italian broadband market has been particularly sluggish recently, with one of the poorest growth rates in Europe, but Fastweb's high value content offer, and, possibly, its future wireless broadband proposition, may turn things around.

Stefano Nicoletti, Service Manager

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