Telecom Italia has presented its three-year strategic plan, which will see it double fibre coverage from the current 42% to 84% by 2018. The remaining 16%, in the most rural areas, will be covered by Infratel, a government-backed body charged with ensuring a nationwide high-speed fibre network.
Telecom Italia (BIT:TIT) has presented its three-year strategic plan, which will see it double fibre coverage from the current 42% to 84% by 2018. The remaining 16%, in the most rural areas, will be covered by Infratel, a government-backed body charged with ensuring a nationwide high-speed fibre network.
“We won’t build the network at any cost, and where it is too expensive, we will buy network capacity from other players,” said chairman Giuseppe Recchi at a company presentation in London on Tuesday.
“Our network investment has to meet strict criteria,” he continued, adding: “We acknowledge that the most economically needy rural areas might be eligible for state aid.” He pointed out, though, that these measures would need to be in line with European rules on state aid.
On the incumbent’s ongoing talks with dark fibre provider Metroweb, CEO Marco Patuano (pictured) told TelecomFinance that any deal would be contingent upon securing regulatory certainty on the price it would be able to charge for fibre.
“We are talking to [sector regulator] Agcom and the antitrust authority, and will only do a deal if it makes business sense,” he said.
As regards the potential to collaborate with energy firm Enel (BIT:ENEL), which has expressed ongoing interest in participating in the country’s €12bn high-speed broadband plan, Patuano said the company was open to all partnerships.
Enel CEO Francesco Starace has said that its Enel Open Fiber plan would be ready in the springtime. In the meantime, Wind and Vodafone continue to discuss a possible joint fibre deployment project with Metroweb. Telecom Italia has insisted from the start that it would need to lead any deployment plan, despite being invited to join its rivals’ suggested partnership.
“Fixed-line is game changer”
To that end, the company said it would dedicate €3.6bn to the next generation network (NGN), an increase of €0.7bn on its 2015-2017 strategic plan. Explaining the target of its greatest capex spend, the company said it saw fixed-line as the “game changer.”
According to Recchi, providing “premium quality digital services and connections” was therefore a “key pillar” for the company’s growth strategy. By investing in NGN, it would benefit from rising data demand – driven by video, changing household habits and evolving business requirements. In 2015, the company said it had experienced a 37% year-on-year rise in fixed-line data traffic (and 45% in mobile traffic), with fixed-line representing 95% of total data traffic in 2015. Fixed-line revenue for FY 2015 reached €10.4bn, while broadband revenue reached €1.7bn.
In what may have been a nod to its 20% shareholder, French media conglomerate Vivendi (EPA:VIV), the company stated its aim was to “make the transition to a platform company”. It said it would deploy a “content platform strategy maintaining a provider agnostic position, pursuing new content distribution opportunities on ‘arm’s length’ terms with all partners.” In 2015, it signed strategic partnership deals with content providers Mediaset and Sky Italia.
The company reported FY 2015 revenue of €19.7bn, a decrease of 4.6% year on year, and an EBITDA of €7bn, a drop of 20.3% year on year.
Breaking it down by market, Italian revenue was €15bn, a fall of 2.3% year on year, with an EBITDA of €5.6bn, a decrease of 20.4%.
For Brazil, revenue was down sharply by 12.1% to €4.6bn, but the company did not report domestic EBITDA.
It spent €5.2bn on capex, an increase of 11.9% year on year. It finished the year with net debt of €27.3bn, a reduction of €0.9bn. During the year, it listed 40% of towerco Inwit raising €854m and sold towers in Brazil for €676m.
Patuano said there would be further opportunity to reduce debt in 2016, through a possible continued exit from towerco Inwit (BIT:INW), the agreed sale of Telecom Argentina and the €1.3bn mandatory convertible bond due November 2016. Telecom Italia is targeting a net debt/EBITDA ration of below 3x by 2018. Starting in 2017, and continuing into 2018, the company plans to raise EBITDA, which would begin to stabilise in 2016.
Consolidation questions
Despite ongoing speculation in the press, Telecom Italia indicated that it is not looking to sell TIM Brasil[b]. The unit has been linked for years to heavily indebted incumbent Oi[b], which has been approached by Russian investor LetterOne.
“There is no discussion. For any deal, all the stars would have to be aligned across regulatory, financial and industrial [issues],” said Patuano. “We are not negotiating, not working on this. People say to me time is on your side, it will arrive in your hands later on. But in time the asset may depreciate. It’s not black and white. It’s more rational to keep the team working on a more delicate [turnaround] strategy.”
Acknowledging that “we are conscious of how delicate the Brazilian situation is economically and politically,” Patuano said the turnaround would be self-financed and that he saw scope for a mobile-only challenger.
Asked for his views on Italian consolidation, Patuano said the agreed merger between 3 Italia and Wind Telecomunicazioni made sense. “If it’s not approved [by regulators], the two separate companies will struggle to compete on longer term capex. Scale matters, especially when you have to make capex, so I’m not surprised they are late in rolling out 4G.”
On cross-border European consolidation, however, he was more circumspect, saying there was not yet a template. Telecom Italia has been named as one of the mid-sized players likely to attract M&A interest, with Orange (EPA:ORA) CEO Stéphane Richard specifically stating an eventual interest.
