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Telecom Italia 07 Net Profit Drops 19%, Dividend Cut

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MILAN (Dow Jones) Telecom Italia Thursday said 2007 net profit fell 18.8% from a year earlier, as domestic fixed and mobile revenue came under pressure and non recurring items of over EUR1 billion hurt core earnings.

Italy's largest telecommunication operator proposed a 43% cut in its 2007 dividend to EUR0.08 a share, in a much-anticipated move that is aimed at reducing its huge debt load, but risks disappointing investors.

In a statement, Telecom Italia said full-year net profit was EUR2.448 billion, down from EUR3.014 billion a year earlier but slightly above the EUR2.401 million average estimate of seven analysts polled by Dow Jones Newswires.

Full-year revenue was little changed at EUR31.29 billion, while earnings before interest, taxes, depreciation and amortization, or Ebitda, fell 9.6% to EUR11.6 billion.

Core earnings were hit by one-off regulatory items, including a cut in international roaming and fixed/mobile termination tariffs and the so-called Bersani decree that eliminated mobile top-up fees, the company said. Telecom Italia cut its net debt to EUR35.7 billion at the end of 2007, below analysts' estimates at EUR36.2 billion and down EUR1.6 billion from the end of 2006.

But the prolonged uncertainty over dividends and future strategy has weighed on the company's stock, which declined 25% in the last month and closed down 3.7% at EUR1.59 Thursday, ahead of the release of the 2007 results.

That price is well below the EUR2.82 a share that Spanish giant Telefonica paid to buy an indirect 10% stake in Telecom Italia last year. Telefonica joined Italian banks Intesa Sanpaolo and Mediobanca, insurer Generali and Benetton's holding company to take control of Telecom Italia from Pirelli in a EUR4.16 billion deal.

Investors are still bracing to know what strategy the new managers will adopt to help Europe's fifth-largest telecom group cope with declining margins and a huge debt burden. New Chief Executive Franco Bernabe, who was appointed in December, is expected Friday to unveil a cautious plan after months of uncertainty over the group's future.

Leaving the Telecom Italia board meeting Thursday, Telefonica's Chairman Cesar Alierta said the new business plan of the Italian operator has "his group's full backing."

Telecom Italia faces aggressive competition from broadband operator Fastweb, which was taken over by Swisscom last year. Smaller rival Tiscali recently said it would consider a takeover bid, confirming analysts' views that Tiscali won't survive as an independent player amid sector consolidation in Europe.

Having ruled out, at least in the short term, a possible sale of its fixed-line network and denied it plans a capital increase, Telecom Italia lacks room for maneuver.

Europe's fifth-largest telecommunications operator faces falling margins in its domestic market and a debt pile that it has pledged to keep below three times earnings before interests, taxes, depreciation and amortization, or Ebitda.

Telecom Italia's new management needs to address pending questions of the sustainability of the company's debt, future dividend policy and how the group will finance its international expansion, analysts noted.

Bernabe has already stressed he wants to abandon a defensive strategy that led Telecom Italia to sell most of its non-core assets, saying he would focus instead on acquisitions.

But analysts have pointed out that selling Telecom Italia Media - something Telecom Italia said it isn't planning to do - and broadband unit Alice France would only raise around EUR1 billion, which wouldn't be enough to allow it to enter new markets.

Telecom Italia plans to invest EUR6.5 billion over the next decade to upgrade its domestic network to handle super-fast broadband. Under pressure from regulators to free up that network to competitors, revenue could suffer and its already-large debt burden could grow further.

-By Giada Zampano, Dow Jones Newswires; +39 02 5821 9907; giada.zampano@dowjones.com

(END) Dow Jones Newswires

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