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Telecom Italia 2007 Revenue, EBITDA Disappoint on Poor Domestic Performance
7 Mar 08
Strong growth in Telecom Italia's international operations has failed to offset a poor performance in Italy.
Global Insight Perspective | | Significance | Telecom Italia has reported strong growth in its international operations but a poor performance in Italy has pulled its overall performance down. | Implications | Given that Telecom Italia relies on its domestic market for more than 75% of its revenue, the company's growth prospects will be hostage to the performance of the Italian market. | Outlook | Although Telecom Italia has outlined modest growth plans for the future, 2008 is likely to be dominated by questions about the ownership structure of the company and constant media speculation about when, or if, Telefónica will launch a takeover bid. |
The Italian telecoms giant, Telecom Italia, has announced disappointing results for 2007 as a poor performance in its domestic Italian market offset gains in its international business. Overall, group revenue rose by 0.6% year-on-year (y/y) to 31.29 billion euro (US$48.23 billion). However, without the addition of AOL internet operations in Germany and other sundry variations, overall revenue fell 1.3% y/y. Revenues in Italy fell by 6%, with Telecom Italia blaming regulatory effects for the decline. The company said the combination of the Bersani Decree, changes in fixed mobile termination charges and the impact of the European Union (EU)-mandated cuts in mobile roaming prices pushed revenues down. Overall, earnings before interest, tax, depreciation and amortisation (EBITDA) were down 9.6% in 2007 to 11.62 billion euro from 12.85 billion euro in 2006, with the company blaming exchange-rate fluctuations and changes to the scope of consolidation. Selected Telecom Italia Financial Details | (mil. euro) | 2006 | 2007 | % Change | Revenue | 31,275 | 31,290 | 0.05 | Domestic | 25,785 | 24,220 | -6.07 | European Broadband | 915 | 1,545 | 68.85 | Brazil | 3,964 | 4,990 | 25.88 | EBITDA | 12,850 | 11,617 | -9.60 | Net Debt | 37,850 | 35,701 | -5.68 | Net Profit | 3,014 | 2,448 | -18.78 | Source: Telecom Italia |
Outlook and Implications Disappointing Italian Results: Although a catalogue of unfavourable regulatory rulings during 2007 hindered its domestic performance, Telecom Italia's performance at home mirrors the problems faced by other leading telcos across Europe. The company saw revenues at its domestic fixed-line division fall 7.4%, and, quite uncharacteristically, revenues at its mobile division dipped 2.8% during 2007. A 9.6% growth in broadband revenues ought to have boosted fixed-line revenues but that was wiped out by revenue declines in voice, data and wholesale services. Telecom Italia's broadband subscriber base rose to 7.6 million at the end of 2007 with 6.4 million as retail customers. The company also had 1.32 million VoIP customers at the end of the year. Its mobile business struggled throughout the year in the face of tough competition from Vodafone, Wind and 3 Italia. However, Telecom Italia finished the year with its 40.3% market share intact, adding 3.9 million customers to finish 2007 with 36.3 million mobile lines. International Operations Remain Strong: As expected, Telecom Italia's international operations performed creditably well in 2007, with the Brazilian mobile unit and the German broadband business reporting impressive revenue growth. The consolidation of AOL Germany, acquired in late 2006, more than doubled revenues in Germany to 1.07 billion euro. In Brazil, TIM Brazil continued its steady growth in the market, growing revenues by 22.7% and improving its market share to 25.8%, 1.9 percentage points behind market leader Vivo. TIM Brazil finished 2007 with 31.3 million customers and is poised for further growth, having added an additional 14 frequency lots in the 900/1800-MHz band. Even in the soon-to-be-discontinued French broadband business, the company raised its revenue by 27.1% to 394 million euro. Despite this strong growth in its international operations, Telecom Italia's overall performance suffered because it relies on its domestic market for more than 75% of its revenue. In contrast, its peers—such as Deutsche Telekom, France Telecom and Telefónica—derive about 50% of their revenues from their home market and are thus able to withstand bumpy operational conditions at home more effectively. Modest Plans for the Future: Given its lukewarm performance during 2007, Telecom Italia has understandably forecast modest growth for the next three years, stating that it expects revenue to grow by about 1–2%. The company is putting its hopes in domestic recovery and sustained growth in its international operations. Its strategy to become a total communications provider in Brazil is fairly clear. The company has already launched fixed-line services and is preparing to launch 3G services across the country. However, the company's strategy in Europe is not so clear. On the one hand, the new management insists it is not interested in selling assets, but the company is likely to sell Alice France soon. That sale would shrink the company's European broadband footprint and expose it further to uncertainties at home. The company has outlined plans for investments and cost cutting in Italy as it aims to stabilise its domestic business. That plan includes its recently won WiMAX licences in Italy. Despite these plans, 2008 is likely to be dominated by questions about the ownership structure of the company and constant media speculation as to when, or if, Telefónica will launch a takeover bid (see Italy: 29 February 2008: Telecom Italia Wins 3 Italian WiMAX Licences, Brazil: 31 January 2008: TIM Prepares for 3G Launch in Brazil and 3 October 2007: TIM Launches Fixed-Line Service in 10 Brazilian States).
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