Telecom Italia cuts profit target as price war bites

Telecom Italia warned profit will fall faster than it had previously thought this year, as a price war for mobile phone services and the deep economic recession in Italy bite.

The profit warning reignited investors’ concerns that Italy’s biggest phone group by market share might have to tap shareholders for cash to meet its debt reduction target and keep an investment-grade rating, sending its shares down 4.2 per cent yesterday.

Telecom Italia stuck to its target to cut net debt, rated at just one level above “junk” status, to below €27 billion at the end of the year from €28.8 billion at the end of June.

The company has struggled to grow because of the six-year long recession and needs to find other sources of finance after attempts to bring new investors on board failed. Yesterday it confirmed plans to issue up to €3 billion of hybrid debt.

Excluding currency fluctuations and other items, it now expects earnings before interest, tax, depreciation and amortisation (Ebitda) to drop at a mid-single-digit rate in 2013, from previous guidance of a low single-digit fall.

Chairman and chief executive Franco Bernabe, who has been steadily cutting costs but has failed to forge tie-ups because of opposition from controlling shareholders, dismissed the need for a rights issue or sale of the company's Brazilian business TIM Participacoes.

He said competition among mobile operators, which hit profitability in the second quarter as the company cut prices to retain customers and attract new ones, had become unsustainable and he expected mergers were not too far away.

Telecom Italia is the leading player in Italy's mobile phone market, battling it out with Vodafone Italia, Vimpelcom's Wind and Hutchison Whampoa's 3 Italia unit.

“The others are suffering as much or more than we are. In the next six months . . . I expect an easing of the competitive pressure,” said Bernabe.