Telecom Italia’s new chief executive outlined a three-year business plan Friday that calls for investing euro15 billion (US$22.98 billion) to help the company exploit the industry’s trend toward mobile and fixed line convergence, while reducing debt and compensating shareholders.
The business plan is the first by new management put in place in November, a month after Spain’s Telefonica and a group of Italian banks took over Italy’s largest telecommunications company. It calls for revenue growth of 1 percent to 2 percent a year through 2010.
CEO Franco Bernabe said he was constrained by the company’s debt, – euro35.7 billion (US$55 billion) – from making excitement-generating announcements like expansion and he said he saw little room for selling other assets.
”Don’t expect from us fireworks, don’t expect from us bizarre strategies,” Bernabe told analysts. ”I think we are very realistic, we know what needs to be done and we need sometime to do it, because the company is big and the problems are many.”
The core of its plan for debt reduction will be on financial discipline, Bernabe said. Telecom Italia also has cut its dividend by nearly a half to euro0.08 (US$0.12), which Bernabe said was more in line with industry standards.
The move has disappointed investors, and Bernabe said he expects it will improve over time. Bernabe said he was at a loss to explain why the stock is performing at its worst level in a decade.
Shares were trading down 6 percent at euro1.492 (US$2.29)on the Milan Stock Exchange in midday trading, though dropping as low as 8 percent earlier in the day.
”What I will do is work very hard during a series roadshows to convince long-term investors that have disappeared from the shareholder base to be confident in our business,” Bernabe said.
Analyst Carlo Alberto Carnevale Maffe, a professor at Milan’s Bocconi University, said the most important news is the shift in strategy from a technology to customer-based organization, meaning instead of focusing its business on fixed line vs. mobile, Telecom Italia will offer services based on whether customers are retail, businesses or large companies.
”Welcome back to a normal company,” Maffe said. ”If the market expected fireworks, the problems were in the market expectations.”
Telecom Italia faces unique challenges as its business is heavily focused on the Italian market where it is under pressure to come up with a plan for separating its network, a move which will cut into profits.
Telecommunications companies in general faces increased competition as fixed line mobile convergence has opened up a scramble for new business with software, hardware and even media companies.
”The company I found is a very different company from the company I left,” said Bernabe, who briefly led Telecom Italia in 1998. ”I have found a company that has no international portfolio except the ones brilliantly preserved by our management. … Most of our sisters have built an international portfolio while we were reducing ours.”
Bernabe said the three pillars of the company’s growth will focus on the Italian market, where it remains the dominant telecommunications company and is its largest market, while consolidating its presence in Brazil, Germany and Argentina and looking for ways to increase efficiencies and synergies, including with Telefonica.
For the moment, Telefonica synergies will be in such back-office operations as purchasing or technology, but Maffe said he expects over the long-term that the two companies will integrate.
The euro15 billion for investments will be generated by industrial activities, Telecom Italia said.
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