IHS Global Insight Perspective | |
Significance | Telecom Argentina recently reported a 20% growth in net revenues in 2010—justifying Telecom Italia's move to raise its stake in the operator. |
Implications | The group is increasingly focused on fast-growing markets in Latin America, and plans to invest around EUR4.8 billion in 2011. |
Outlook | Telecom Italia is seeing few signs of recovery in its domestic markets, where it faces increased competition and tighter regulation by the European Union. |
Telecom Italia has revealed its full-year 2010 revenues were up 2.5% year-on-year (y/y) to EUR27.57 billion (USD37.9 billion), as continued growth in its Latin American markets offset widespread declines at home. The Italian incumbent also announced its 2010 earnings before interest, taxes, depreciation, and amortisation (EBITDA) were up 2.7% y/y to EUR11.41 billion, again largely driven by strong growth in Brazil and Argentina.
In the fourth quarter of 2010, Telecom Italia revealed its revenues were up 11.2% y/y to EUR7.67 million, while EBITDA jumped 13.5% y/y to EUR2.94 million, mainly due to the consolidation of its stake in Telecom Argentina at the start of the quarter.
Outlook and Implications
- Future Strategy Revealed: Telecom Italia Chief Executive Franco Bernabe said in a statement that the operator had undergone a "great transformation" during 2010, increasing its presence in Latin America and rebalancing the group's activities. The CEO presented its guidelines and targets for its 2011-2013 plan, which confirmed Telecom Italia's focus on cash flow generation in its strategic markets—Italy, Brazil and Argentina—with the aim of stabilising consolidated revenues on the contribution of its Latin American operations (see World: 25 February 2011: Telecom Italia to Strengthen Focus on Italy, Brazil and Argentina). As part of the plan, the group will invest around EUR4.8 billion in 2011. The group also aims to achieve gains through higher operational efficiency and targeted investments, and progressive reduction of its debt. Telecom Italia substantially met its debt-reduction target for 2010, cutting its closely watched net debt to EUR32.1 billion at the end of December, from about EUR33 billion at end-September, and now plans to further reduce this to about EUR25 billion by 2013. Mr Bernabe's strategy update is being seen as key, as he faces Telecom Italia shareholders' decision on whether to extend his three-year mandate at the helm of the operator, which is due to expire in April.
- Latin American Growth Key to Success: In Brazil, Telecom Italia saw 2010 revenues at its TIM Brasil mobile operator jump 30.4% y/y to EUR6.2 billion, as the unit continues to see rapid subscriber growth. The unit gained the lion's share of net subscriber additions for the third consecutive month in October with a 35% share (see Brazil: 24 November 2010: TIM Adds More Subscribers Than Rivals in Three Consecutive Months), strengthening its position in an increasingly competitive market. Meanwhile, Telecom Italia's full-year earnings were also boosted by consolidation of its Telecom Argentina stake, where 2010 revenues reached EUR798 million. Telecom Argentina recently reported a 20% growth in consolidated net revenues in 2010, driven by a 24% increase in mobile revenues, which accounted for some three-quarters of turnover. Mobile customers in Argentina and Paraguay increased by 12%, with fixed broadband customers up 14%, and mobile traffic also up 14%—justifying Telecom Italia's move to raise its stake in the operator (see Argentina: 23 February 2011: Telecom Argentina Sees Strong Broadband and Wireless Growth in Q4). At the end of August, Telecom Italia reached a deal with the Werthein Group to increase its stake in the holding company that controls Telecom Argentina to 58% from 50%, as the operator moved to strengthen its international presence. The Italian operator is now focusing on its profitable Latin American operations as it faces slowing revenue in its domestic market.
- Few Signs of a Turnaround in Italy: Revenues at Telecom Italia's domestic operations in 2010 were down 7.4% to EUR19.07 billion, as sales in its consumer segment fell 11.5% y/y, mainly due to a drop in fixed-line and mobile voice revenues. Its domestic business unit saw revenues down 5.9% y/y, but the operator said the segment was showing some further signs of recovery. Like many of its European peers, Telecom Italia is facing increased competition at home and tighter regulation by the European Union (EU), as the Italian regulator has trimmed a recent increase in fixed-line unbundling tariffs following pressure from the EU to limit the rise (see Italy: 12 November 2010: Italy Trims Increase in Unbundling Fees Following EU Intervention). Meanwhile, the Italian government has recently announced that it has reached an agreement with the country's fixed-line operators to create a new body to co-ordinate the rollout of fibre-optic, next-generation networks, breaking months of deadlock over infrastructure commitments. Elsewhere, Telecom Italia Media (TIM) has stated that it expects its full-year 2010 EBITDA to remain unchanged from the figure reported at the end of the first nine months of 2010, owing to the liquidation of its Dahlia TV unit (see Italy: 11 January 2011: TIM Sees 2010 EBITDA Flat at Nine-Month Figure, Following Dahlia TV Liquidation).