Telecom Italia steps up spending at home, slows debt reduction

People walk past a Telecom Italia phone booth in Rome August 28, 2014. REUTERS/Max Rossi

MILAN (Reuters) - Telecom Italia plans to step up its spending on building out faster fixed and mobile networks in its home market over the next three years, where it sees core earnings returning to growth from 2017, the company said on Tuesday.

The former national monopoly network operator, which has been struggling for years with a lack of a clear strategy and is regarded as a potential takeover target, also reported a 20 percent drop in core earnings last year, hit by one-off charges totaling 1.08 billion euros ($1.2 billion) and a further deterioration in the performance of its Brazilian business.

Excluding one-off charges and currency effects, group earnings before interest, tax, depreciation and amortization (EBITDA) fell 4.5 percent last year.

Analysts said the EBITDA result was slightly below expectations but they welcomed a return to growth in mobile service revenues in Italy in the last quarter of the year.

The stock, which was down 0.2 percent at 0.87 euros in early trade on Tuesday, is down 25 percent so far this year, making it the worst performer among its European peers, while the Stoxx Europe 600 telecoms sector index <0#.SXKP> is down 10 percent.

The company wants to recover its domestic dominance as its traditional fixed line phone services lose appeal amid competition from Internet rivals, with a renewed focus on Italy coming at a time when the worst economic downturn in decades has weighed on its majority-owned Brazilian subsidiary TIM Participações SA.

Outlining its new investment plan to 2018, the heavily indebted company said on Tuesday it would spend 12 billion euros ($13.4 billion) over the three years in Italy, including 3.6 billion to lay fiber optic cables.

The development of a national ultra-fast broadband network is one of the top priorities of Prime Minister Matteo Renzi's government. Telecom Italia's new investment target for Italy is 20 percent higher than the sum it had earmarked in its previous three-year plan.

Telecom Italia said its fiber optic cables would cover 84 percent of the country by 2018, while its 4G mobile network would cover more than 98 percent.

The company also capped planned spending on upgrading its mobile network in Brazil, where it expects to grow market share and EBITDA margin, at 14 billion reais ($3.5 billion).

Telecom Italia, whose top shareholder is now French media group Vivendi with a 21.4 percent stake, said it plans to strengthen its position in multimedia entertainment, including in video, music, gaming and publishing.

The group said its net debt would fall to below three times EBITDA by the end of 2018, despite the negative impact of accounting adjustments worth 2 billion euros. The new target is less ambitious than the 2.5 multiple by the end of 2017 which management had forecast in its previous plan.

($1 = 0.8960 euros)

($1 = 4.0168 Brazilian reais)

(Reporting by Agnieszka Flak and Stefano Rebaudo; editing by Silvia Aloisi, Greg Mahlich)