Telecom Italia net profit masks overall drop in earnings

Telecom Italia posted a slim net profit in the opening six months of 2014 and thereby turned round a net loss from the first half of 2013, but the operator lost out in other key earnings metrics due to ongoing domestic struggles and a drop in performance at its Brazilian unit.

The Italian company generated an overall net profit of €535 million ($714 million) in the first half of 2014 compared to a loss of €1.4 billion in the same period of 2013. Last year's loss was almost entirely due to a goodwill impairment it booked in the 2013 period, which dragged down its net profit. The Wall Street Journal noted that Telecom Italia would have generated a profit of €800 million in the first half of 2013 without the impairment.

Nevertheless, group earnings before interest, depreciation, and amortisation (EBITDA) present a somewhat clearer picture of the group's actual performance in the opening half of 2014. The figure dropped 7.6 per cent year on year to €4.35 billion on the back of an 11.2 per cent drop in overall revenues when counting the company's IT equipment division Olivetti.

The EBITDA figure fell just shy of the average €4.36 billion predicted by analysts, according to data compiled by Bloomberg.

Core domestic revenues for Telecom Italia's fixed and mobile businesses dropped 8.8 per cent year-on-year, as annual growth in mobile data revenues of 13 per cent only partially offset declines in traditional voice and messaging income.

Revenues at TIM Participacoes--Telecom Italia's Brazilian--unit fell 1.8 per cent year-on-year in the first half of 2014 due to economic weakness in the country and depreciation in currency exchange rates.

Rival Telefónica, which operates under the Vivo brand in Brazil, last week reported a 16.3 per cent drop in operating income before depreciation and amortisation at Telefónica Brasil in the opening half of 2014 compared to the same period of 2013.

The Spanish company has also turned up the heat in Brazil, with a bid to acquire local broadband operator GVT from Vivendi.

Telecom Italia noted it is continuing to invest in new services to offset the decline of traditional telephony revenues. One such example is a collaboration agreed in April with broadcaster Sky Italia to offer web-based TV services.

The operator said it will continue to invest in such new services, and remains focused on maintaining and growing its subscriber base by offering fixed-mobile convergence products on fibre and LTE networks. Telecom Italia increased capital expenditure (capex) on those technologies in its domestic market by €79 million year-on-year in the opening half of 2014, increasing the proportion of overall capex pumped into the technologies from 24 per cent in first half 2013 to 34 per cent in the recent period.

For more:
- see Telecom Italia's earnings release
- read this Wall Street Journal article
- read this Bloomberg report

Related Articles:
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Telecom Italia CEO rules in Brazil merger, stresses independence from Telefónica
Telefónica cuts stake in Telecom Italia through bond sale
Telecom Italia shareholder Telco approves break-up, makes €830M writedown
Telecom Italia hit by domestic price war in Q1, but sees recovery ahead

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