Telecom Italia cost-cutting strategy rallies market

27 July 2016 |

Telecom Italia Group’s new CEO has launched a cost-cutting plan that sees 25% of the company’s top managers leaving the company.

Telecom Italia Group’s new CEO, Flavio Cattaneo, has launched a cost-cutting plan that will see approximately a quarter of the company’s top managers leaving the company by 2018. The plan will affect 170 of Telecom Italia’s 648 top executives. The plan will be executed by Francesco Micheli, head of the company's human resources and organisational areas.

Earlier this year the operator announced plans to offer early voluntary redundancies to some 3,300 workers under its 2016-18 strategic plan. At the same time, the company said it would use what it called ‘solidarity’ contracts to avoid approximately 2,600 redundancies by paying employees less to work fewer hours.

In May this year Telecom Italia reported a 12.1% year-on-year fall in first-quarter revenues. Cattaneo announced that the target for cost-cutting measures would be tripled to €1.6bn by 2018.

The Italian company is seen as a likely takeover target because of its size – much smaller than most of its European rivals – and is only present in its home market and Brazil. However it has first-mover advantage in Italy's nascent ultrafast broadband market.

Bloomberg reported yesterday that Vivendi CEO Arnaud de Puyfontaine said he has an open mind regarding the potential of a future Telecom Italia-Mediaset merger but nothing was on the table at the moment. However, he also said that he could imagine Telecom Italia being ‘consolidated’ at some point.

Bloomberg also reported that de Puyfon was: “Very happy with the results statement Telecom Italia will present later on Tuesday.”

Telecom Italia SpA indeed posted its fastest increase in domestic quarterly earnings in seven years. This is being interpreted as a sign that Cattaneo’s push into more lucrative broadband services and current, and planned, accelerated cost cuts are starting to pay off and the market is responding well to plans and actions.

Earnings before interest, taxes, depreciation and amortization rose about 25 percent to €2.01bn ($2.2 billion) in the second quarter of the year. The number was bolstered by the reversal of a €66m provision for employee bonuses that were not paid out. In organic terms, the increase was 4 percent, the company said. The company’s stock rose up to 10% in Milan on Wednesday, the steepest intraday advance since October, and was trading up 8.9% to €0.75 cents at midday, giving the company a market value of €13.9bn.

Cattaneo said in the statement: The mobile segment in Italy has improved its development trend and the landline segment has shown important signs of recovery.”

Telecom Italia appointed Cattaneo in March, turning to a media industry veteran to implement a turnaround. Cattaneo almost tripled targets for reducing expenses to 1.6 billion euros by 2018 as he works to improve profitability at the carrier. With the support of Vivendi SA, the company’s biggest shareholder, the CEO is focusing on boosting fast broadband networks in a country where average landline internet speeds are among lowest in Europe.