VIVHY Vivendi SE (PK)

By Manuela Mesco 

MILAN--Italian telecom giant Telecom Italia SpA will spend billions over the next three years in new investment aimed at reversing a decline that saw a sharp fall in profit and revenue last year and that has made the company vulnerable to a takeover.

After years of no revenue growth, the firm's management is now under pressure to deliver results, as its largest shareholder Vivendi SA pushes for a more effective strategy and speculation swirls that the Italian group could be a takeover target.

Telecom Italia has struggled to outline a fruitful strategy to deal with the twin challenges of a protracted economic downturn in Italy and fierce competition that has sent prices spiraling downward in its domestic market, which makes up the lion's share of its business.

The high debt of the company has limited its ability to invest in the country's infrastructure and new technology for years, leaving it lagging behind many peers developing broadband services and content that could lure new customers and help raise prices, analysts say.

But Telecom Italia announced Tuesday it will sink EUR12 billion in investments in Italy over the next three year--higher than its previous target of EUR10 billion planned in its 2015-2017 strategy plan. It also said it will push harder on new content such as music, video and gaming.

"We are not increasing [investment]," said Chief Executive Marco Patuano speaking to analysts on Tuesday. "We are accelerating it."

Mr. Patuano also said that, while multimedia and content such as video and music streaming are not "incredible revenue drivers," they help retain customers and reduce subscription losses.

According to some analysts, the plan is partially the fruit of pressure from Vivendi influence. In December, Vivendi--which now holds a 21% stake in Telecom Italia--won four seats in Telecom Italia's board after a harsh battle with minority shareholders. It has repeatedly said that it plans to play an active role in Telecom Italia's future and that it wants to give the company a better direction.

Telecom Italia's business plan was for Vivendi "the first step to see if everyone's rowing in the same direction," says Kepler Cheuvreux's analyst Javier Borrachero.

But a revival of Telecom Italia will be an uphill battle. Earlier Tuesday, it said 2015 preliminary Ebitda fell 20% compared with the previous year, to EUR7 billion, while revenue dropped 8.6% to EUR19.7 billion.

Net debt rose again last year, reaching EUR27 billion, raising concerns among analysts about how the company will pay for the investment plan.

Telecom Italia emphasized that its Italian revenues are now falling less sharply than before. It also expects Ebitda to stabilize this year and grow in 2017 and 2018.

But domestic revenues, accounting for over two-thirds of the total, fell 2.3% last year and Ebitda dropped 20% compared with the previous year.

"We have made significant improvement in Italy," said Mr. Patuano on Tuesday. "Investments have started to pay off."

However, the poor results pushed down Telecom Italia's stock, which has been battered in recent weeks, falling 30% since the end of last year. On Tuesday, Telecom Italia's stock price closed 6.4% down in Milan's stock exchange, at EUR0.82.

Nick Kostov contributed to this article

Write to Manuela Mesco at manuela.mesco@wsj.com

(END) Dow Jones Newswires

February 16, 2016 13:00 ET (18:00 GMT)

Vivendi (PK) (USOTC:VIVHY)
Historical Stock Chart
From Jun 2024 to Jul 2024

Vivendi (PK) (USOTC:VIVHY)
Historical Stock Chart
From Jul 2023 to Jul 2024