August 7, 2015 / 6:27 AM / 5 years ago

UPDATE 2-Telecom Italia steps up investment as broadband demand grows

* H1 EBITDA 3.63 bln euros, missing expectations for 3.76 bln

* Q2 domestic underlying EBITDA down 2.7 pct vs 4.8 pct in Q1

* H1 investments rise 26 pct to 2.1 bln euros (Adds investment plans, comment by analyst, share price)

By Danilo Masoni

MILAN, Aug 7 (Reuters) - Telecom Italia has stepped up spending on modernising its networks to exploit growing demand for broadband services, it said on Friday, as it prepares for a changing mobile market with the merger of rival network operators Wind and 3 Italia.

In the first set of results since Vincent Bollore’s French media group Vivendi became its largest investor, Italy’s biggest phone group said first-half investments rose 26 percent to 2.1 billion euros and a shift into providing media content was starting to bear fruit.

Chief Executive Marco Patuano has signed deals with TV firms Netflix, Sky and Mediaset to help return its domestic business to growth in 2017 and end years of focusing on cutting debt.

“Our agreements with national and international TV players are driving the demand for ultra (fast) broadband connection,” he said in a statement on Friday.

Italian Prime Minister Matteo Renzi has pledged 7 billion euros in public money to help roll out super-fast cables across the country, in a priority project he believes will help revive Italy’s economy after three years of recession.

Meanwhile the network operators in Italy now have renewed hope for an end to a long price war that has cost them billions of euros in lost income, after Vimpelcom and CK Hutchison agreed on Thursday to merge their Italian mobile businesses, Wind and 3 Italia.

Patuano said on Friday that news of the merger could only improve the situation with regard to margins in the Italian market.

Telecom Italia reported on Friday that its core earnings in the first half of the year fell 16.4 percent in the first half, hit by 399 million euros ($436 million) in one-off charges, for what it said were regulatory and legal risks, and lower revenue in both Italy and Brazil, its two main markets.

First-half earnings before interest, tax, depreciation and amortisation (EBITDA) fell to 3.63 billion euros, which the company said was below the average of analysts’ forecasts of 3.76 billion euros.

Sales at the former telecoms monopoly fell 4.3 percent to 10.1 billion euros, matching analyst expectations.

However, the decline in the company’s reported domestic EBITDA before one-offs narrowed to 2.7 percent in the second quarter from 4.8 percent in the first and it said its operating performance would gradually improve in Italy and Brazil this year.

“Telecom looks to be effectively executing on its strategy,” Jefferies Equity Research said.

By 1037 GMT Telecom Italia’s shares were up 0.1 percent at 1.222 euros. In the last six months the stock has risen 27 percent, outperforming a 9 percent rise in the Stoxx Europe 600 telecoms sector index, mainly due to expectations of the mobile market consolidation. ($1 = 0.9159 euros) (Editing by Greg Mahlich)

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