Telecom Italia hit by domestic price war in Q1, but sees recovery ahead

Telecom Italia said it expects to see a "progressive acceleration" in its recovery this year after the Italian incumbent reported a year-on-year decline of 8.4 per cent in its core profit for the first quarter of 2014.

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Marco Patuano

The company said the drop in group EBITDA to €2.2 billion ($3 billion) reflected the ongoing price war on the domestic mobile market, among other factors, while prices and revenues from traditional services continued to fall. Revenue was also down by 11.9 per cent at €5.188 billion.

CEO Marco Patuano said the company's offer "is evolving from a price-based competitive rationale" to a greater focus on more innovative services. He highlighted the recent deal with Sky Italia that will allow Telecom Italia to make premium content offers to customers, such as coverage of the FIFA World Cup.

In a separate release this week, the company also said it has rebranded its content formerly marketed under Cubovision as TIMvision in order to better integrate content services with its LTE plans for smartphones and tablets.

"TIMvision…becomes an integral part of the new portfolio of 4G TIM: from now on you can choose between entertainment and sports at no additional cost for all the 4G LTE Internet offers," said Telecom Italia in a release.

That strategy will be welcomed by some analysts, who say the company can no longer rely on revenue from voice and messaging services due to growing competition from over-the-top players such as Facebook.

"The company has to improve its ability to strike strategic partnerships and tighten the grip with Web companies," Carlo Alberto Carnevale Maffe, a business professor at Milan's Bocconi University, told Bloomberg.

Telecom Italia's first-quarter results also indicated continuing growth at its Brazilian unit, TIM Brasil, which has been the focus of much discussion in recent months due to Telefónica's growing control over Telco, which owns 22.4 per cent of Telecom Italia. Dissident shareholders fear the Spanish company will force a sale of TIM Brasil; Telefónica competes with the Telecom Italia unit in Brazil through Vivo, and has already come under fire from Brazilian anti-trust authorities over its plans to increase control over the Italian operator.

Overall, Patuano said the company is in line with its targets as a whole, and stressed that investments in fixed and mobile "ultrabroadband" coverage would continue.

"This has not meant a loss of focus on financial discipline, with major efficiency programmes on both costs and on traditional CAPEX," he added.

In April, Telecom Italia confirmed Patuano's appointment as CEO and appointed Giuseppe Recchi as chairman of a new board that is now controlled by independent directors.

For more:
- see Telecom Italia's results statement
- see this Bloomberg article

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