After months of disruption and speculation about its future strategy, Telecom Italia finally unveiled a new plan that will see the Italian operator invest €3.4 billion ($4.5 billion) in next-generation networks, cloud computing and LTE and raise funds of around €4 billion through the sale of its Argentina unit and other assets and the issue of up to €1.3 billion in mandatory convertible bonds.
The new strategy forms part of efforts by new CEO Marco Patuano to stave off further credit rating downgrades and strengthen its operations in Italy and Brazil. Reuters said the strategy has received the backing of Telefónica, which plans to increase its control of Telecom Italia through the Telco shareholder group. Telco owns 22.4 per cent of the Italian operator.
Patuano took over from Franco Bernabe, who resigned last month after clashing with Telefónica over the Italian operator's strategy. Telecom Italia has since seen its debt cut to junk by Moody's. Standard & Poor's is to complete its review this month.
"The plan for the three year period 2014-2016 envisages some extraordinary transactions intended to strengthen the group," Patuano said in a statement following the company board meeting on Thursday. "These will allow us to boost development of ultra-broadband and accelerate our converging business strategy, and to achieve greater financial flexibility, preparatory to our achieving metrics over the life of the plan that are coherent with 'investment grade' status."
Patuano said Telecom Italia plans to invest a total of €9 billion in Italy over three years, of which €3.4 billion will be earmarked for next-generation network technologies such as optical fibre and LTE networks. The company said €1.8 billion will be ploughed into fixed "ultra-broadband" networks, while €900 million will go towards expanding its next-generation mobile network. A further €700 million will be used to create new data centres in order to support the company's future cloud computing and international wholesale strategy.
By 2016, Telecom Italia said its next-generation network will reach over 50 per cent of the population, connecting 12.4 million homes, while LTE will cover 80 per cent of the population.
Telecom Italia also said it has also confirmed the plan for the "voluntary separation of the access network," but said a spin-off of the fixed-line network would be assessed only after the Italian and European regulatory frameworks have been brought into line.
With regard to Telecom Argentina, the company's board of directors said it has received an offer for its 22.7 per cent stake in the operator and has authorised management to pursue the transaction in order to reach terms that are in the best interest of the company.
Citing reports in Argentine newspapers Clarin and La Nacion, Reuters said the buyer is believed to be investment fund Fintech, which already holds shares in Telecom Italia's Argentine unit. Bloomberg said the stake has a market value of around $1.4 billion (€1.05 billion).
Telecom Italia also plans to sell and lease back more than 17,000 mobile towers it owns in Italy and Brazil, and unload an Italian digital broadcasting unit. Reuters added that these two deals are expected to raise more than €2 billion.
Reuters said Telefónica still backs a sale of Tim Brazil, and said Patuano has not ruled this out. However, the CEO has also emphasised the importance of the Brazilian operations to the group and unveiled plans to spend 11 billion reais ($4.74 billion or €3.55 billion) on network upgrades there between 2013 and 2016.
In a separate statement, Telecom Italia reiterated its financial targets for 2013, but added that "actual results may differ, even significantly, from those forecasted for the whole of 2013."
Telecom Italia said its revenue in the first nine months of the year fell 7.6 per cent to €20.38 billion, while core profits fell 10.5 percent to €7.93 billion. Both were broadly in line with market expectations. Adjusted net debt stood at €28.23 billion at the end of September, which Reuters said was also in line with analysts' expectations.
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