Telecom Italia stands by forecast after growing profit in 1Q

Telecom Italia looks to have turned a corner in 1Q10, with net profit up 30.7% on flat sales.

Net profit of €601 million was up from €460 million in 1Q09, while revenues were broadly stable - falling a marginal 0.7% to €6.4 billion.

Much of the revenue decline was due to falling fixed and mobile voice revenues in Italy, which offset 31.2% growth across all sectors in Brazil – the telco’s second core market.

Declining demand for voice services was also to blame for a €41 million fall in international wholesale revenues to €398 million at the firm’s troubled Sparkle division.

However, CEO Franco Bernabè said the result proved the firm is “on the right track to re-launch the group,” referring to a three year repositioning strategy in Italy and Brazil.

That view is borne out by the fact the firm beat analyst’s predictions of a net profit of €511 million during 1Q, reported.

Although the group’s fixed-line internet revenues grew €29 million to €450 million in 1Q10, that business will face increased competition from Vodafone, Wind, and FastWeb, which are today expected to unveil plans to build a €2.5 billion high-speed broadband network in Italy, reports (see also Italian ISPs plan rival to TI’s fixed network, below).

Despite the threat of increased competition, Bernabè predicts Telecom Italia will remain on track to “meet the commitments made in the three-year plan,” during the rest of 2010.

However, the markets weren’t so confident, resulting in the firm’s share price falling to 94 cents - a nine-month low - within 30 minutes of its results being announced, according to investment news site Interactive Investor.