Telecom Italia SpA's abrupt ousting this year of CEO Amos Genish may have landed U.S. hedge fund Elliott Management Corp. another blow in its shareholder standoff against Vivendi SA, but further uncertainty lies ahead for the former monopoly.
The company appointed Luigi Gubitosi as its fifth CEO in five years Nov. 18, amid an escalating shareholder battle for control between Elliott and Vivendi, its two largest shareholders. The rivalry intensified after Elliott Management secured two-thirds of Telecom Italia's board seats in May.
For a start, several historical challenges remain for Italy's biggest mobile carrier. Laden with debt and plagued with declining profits, the group has battled against a poor market — exacerbated by a faltering economy — for the better part of the last decade. The company narrowed its adjusted net financial debt in the first nine months of 2018 to €25.19 billion, but this is still more than twice its €11.72 billion market cap.
There is also a debate about Elliot's push to divest some of Telecom Italia's network operations, including selling a stake in the towers company and a full spin-off of the phone network, which the group's former management opposed.
"The key conflict seems to be the view on what to do with the network," Luca Schiavoni, senior analyst at communications research firm Assembly Research, said in an interview.
In September, Telecom Italia confirmed it was still considering opportunities to invest in assets and sell noncore operations.
On the one hand, getting rid of the network rids the company of the regulatory burden of overseeing the country's largest fixed network, making it more agile, Schiavoni said. At the same time, the Italian government has concerns about the network slipping out of Italian hands, he added.
"Mindful of national security aspects ... [they] are not happy with the fact that some foreign shareholder might have a say over the national network," Schiavoni said.
Aside from potential divestments, Telecom Italia will also need to demonstrate that it is making a return on the huge sum it recently paid for 5G spectrum licences, according to Dean Bubley, industry analyst and founder of Disruptive Analysis, an independent consulting firm.
Italy reportedly raised a total of €6.55 billion in the 2018 auction for 5G spectrum, which amounted to 164% higher than the value of initial offers. Telecom Italia said it had invested a total of about €2.41 billion on 5G spectrum.
New threats have also emerged in the form of the competitive impact of Iliad as a disruptive new entrant in May, Bubley said. The French operator's low-cost pricing strategy positions the group as a major competitor against Telecom Italia, Wind Tre Italia SpA and Vodafone Group PLC. Iliad had 1.5 million subscribers in Italy by early August.
In a recent research note, Goldman Sachs analyst Katherine Alexakis downgraded Telecom Italia's stock to "neutral" from "buy," citing weaker macroeconomic conditions, management changes and shareholder disputes.
