Downgrade adds to Telecom Italia's problems

Former State monopoly sees shares creep lowere

Downgrade adds to Telecom Italia's problems

(by Emily Backus) Rome, August 5 - Fitch said Monday that it has cut Telecom Italia's Long-term Issuer Default Rating (IDR) to 'BBB-' from 'BBB', with a negative outlook, adding to a host of problems now facing Italy's biggest telephone company. The ratings agency said the "downgrade reflects the worsening operating conditions in TI's domestic business due to regulatory pressure, a continued mobile price war and a weak economic environment". Domestic business deteriorating TI's H113 results and full year domestic guidance were weaker than Fitch expected. TI's revenue and EBITDA trends in 2013 are likely to be worse than that reported in 2012. The mobile price war in Italy is showing no signs of abating and the effects of a weak Italian economy could to persist into 2014, Fitch said. Increasing pressures in the domestic business, TI's main generator of cash flow, means visibility is worsening. Management has shown in the past it has been able to deal with regulatory and competitive pressures to prevent TI's credit metrics deteriorating. The Negative Outlook reflects Fitch's concerns that TI's financial cushion to deal with future adverse shocks to the business has been reduced. The former State monopoly saw its shares creep down on Monday 1.24% on the Milan bourse to 0.48 per share - one of its lowest levels in 16 years. The rating downgrade also follows news that the company's rival Vodafone Italia has filed a civil lawsuit seeking more than one billion euros in damages for TI's alleged abuse of its dominant position on the fixed-line telephone network in Italy. The lawsuit came after the Italian antitrust authority in May fined TI 103 million euros on similar charges. TI has appealed the antitrust ruling and rebuffed Vodafone's accusations, saying the company is confident it will "succeed in demonstrating the absolute correctness of its own behaviour". TI on Friday reported first semester losses of 1.4 billion euros and issued a profit warning for the year. The company said results were affected by 2.2 billion euros in goodwill writedowns. TI has also suffered uncertainty over its plans to separate its fixed-line network from its other businesses, although on July 25, Italy's telecommunications regulator Agcom on issued a preliminary approval of the plan. Agcom's communications guarantees board said the spin-off plan ''answers to the requisites'' outlined by European telecommunications regulators. Trading in Telecom Italia suspended on the Milan bourse on July 31 after press rumours of a possible capital increase sent shares plummeting nearly 5%. Chief Executive Franco Bernabe' denied the report, saying a capital increase was not, in fact, on the TI board's agenda.

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