Telecom Italia sees gloomy outlook

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Telecom Italia on Friday painted a grim picture of declining growth at home, leading it to emphasise its plans for other countries over the next three years.

Italy’s dominant telecoms company, whose new management was presenting a three-year plan in Milan after six months of unrest and upheaval, again cut its revenue projections heavily following further missed targets.

It said revenue growth in the period 2007-09 would be 1-2 per cent a year, down from last year’s forecast of 3-4 per cent for 2006-08 and even further from a 2005 prediction of 4-6 per cent growth for 2005-07.

Telecom Italia’s actual “organic growth” in revenues in 2006, announced this week, was up 2.9 per cent, but the company – like many in its sector – is facing flat or declining margins in its traditional businesses. The company said margins in its domestic business in 2007 would be 1.5-2 percentage points lower than last year.

Riccardo Ruggiero, chief executive, showed analysts’ projections of a continued decline in voice calls from fixed-line phones, while in the mobile market revenues from voice calls would “stop being a key contributor to growth”. TI’s mobile revenues will be cut by hundreds of millions of euros by a government decree banning some charges on pre-paid phonecards.

The company is focusing on broadband and entertainment services, while continuing its efforts to cut costs. The company is also expanding broadband in France and Germany.

Meanwhile growth is being driven by success in Brazil, where TI’s mobile operation is second in the market and increasing its share. Carlo Buora, deputy chairman, said Brazil was “the key asset in our international growth strategy”, underlining the reversal from a planned restructuring in September which could have seen a sale of the company’s Brazilian mobile business.

The September plan was announced by Marco Tronchetti Provera, the chairman who soon quit in a row with the government over potential asset sales. Mr Tronchetti is still chairman of Pirelli, which is TI’s dominant shareholder.

Pirelli has been talking to numerous potential buyers about reducing its stake in TI but the latest, Telefonica of Spain, has scrapped plans for a large strategic and share deal. Guido Rossi, who took over as TI chairman from Mr Tronchetti, on Friday said there could still be talks with Telefonica on certain areas of co-operation. The company was also open to other alliances, he said, and had been having discussions with France Telecom and Deutsche Telekom.

TI plans to spend a small amount – about $7m – to acquire full control over the holding structure for Telecom Argentina. That will enable it to consolidate Argentine revenues, and, it said, add about 0.5 per cent to revenue growth in 2009.

“Revenues from international operations would grow from the current 16 per cent of the total revenues to 30 per cent in 2009,” the company said.

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