Telecom Italia’s Patuano Enlists AT&T CEO for Revival Advice

Apr 07, 2014 12:08 pm ET

(Updates with Telecom Italia close in 13th paragraph.)

April 7 (Bloomberg) -- Telecom Italia SpA Chief Executive Officer Marco Patuano, accelerating his efforts to revive the indebted former phone monopoly, is turning to advice from a one- time suitor across the Atlantic: AT&T Inc.’s Randall Stephenson.

Patuano made a week-long U.S. trip last month, meeting with executives from Qualcomm Inc., Microsoft Corp. and Amazon.com Inc. It was, however, the AT&T CEO from whom Patuano sought inspiration for how to increase customer spending with bundled Internet, phone and TV packages.

“AT&T is an excellent turnaround case study,” Patuano, 49, said in an interview in his Milan office last week after what he called an “innovation trip.” “Telecom Italia is very interested in their ability to transform their business.”

While Telecom Italia is trying to end years of losses and sales declines caused by falling prices, AT&T has earned about $100 billion over the past decade as phone bills were boosted by consumers browsing the Web and downloading videos. AT&T, the biggest U.S. phone company, has increased data speeds and added TV and video offerings to make up for slowing voice revenue.

Patuano, a 24-year company veteran named CEO last October, is in a similar situation that Stephenson faced in 2007. Both took over from long-term CEOs who personified each country’s top carrier -- and left their successors with plenty of challenges.

Stephenson inherited a conglomerate built by Ed Whitacre through acquisition over his 17-year tenure, and was tasked with finding growth as main rival Verizon Wireless was winning users.

Succeeding Bernabe

Patuano took over from Franco Bernabe, who ran the company for about six years as the shares fell more than 70 percent. Annual sales have shrunk by almost a third over a decade as competition from Vodafone Group Plc and VimpelCom Ltd.’s Wind unit has hurt prices in Italy’s saturated market.

Stephenson, 53, won users by being the first to offer Apple Inc.’s iPhone -- allowing Dallas-based AT&T to jump start data- revenue growth -- and challenged cable-TV carriers with a high- speed broadband offerings combining Internet and entertainment.

An AT&T mobile subscriber has an average monthly bill of about $66, compared with about $18 at Telecom Italia. Large U.S. carriers have been quicker than European counterparts to move to fourth-generation networks that offer faster data speeds, allowing them to charge more. Call revenue is under pressure because of competition from smaller, cheaper rivals.

Argentine Sale

“Just like AT&T did, the European market and Telecom Italia are moving to flat voice commercial offers without differentiating mobile or fixed-line services,” Patuano said, displaying devices Telecom Italia wants customers to use more of including an iPad Air, a Samsung Galaxy S5 phone and an ultra- thin Samsung laptop. Patuano, an avid motorcyclist, wore a smartwatch on his wrist that allows him to receive calls, text messages and e-mails.

Brad Burns, an AT&T spokesman, declined to comment on the meeting between Patuano and Stephenson.

So far, Patuano has sold Telecom Italia’s headquarters in Milan and its Argentine business, and scrapped dividends in a bid to stabilize finances. Telecom Italia, privatized by the government in 1997, had its debt cut to junk by Standard & Poor’s and Moody’s Investors Service last year and needs funds for investments to reverse falling sales. Its net debt amounted to $37 billion at the end of last year.

Telecom Italia climbed 1.7 percent to close at 89.3 cents in Milan. They have risen 39 percent since Patuano took over, giving the company a market value of $22.4 billion. AT&T rose 0.4 percent to $35.68 at 12:06 p.m. in New York for a market value of $186 billion.

Video Push

“In a market in which prices of traditional services are always under pressure, the future of European telcos is strongly tied to their ability to innovate,” said Andrea Rangone, a professor of business strategy at Milan’s Politecnico University. “Patuano’s strategy has been to focus greatly in the area.”

Patuano said one source of growth could be an expansion into video delivered over broadband networks -- a strategy AT&T has pushed through its U-verse service, which now has more than 10 million subscribers and which boosted revenue 28 percent last quarter. Customers using U-verse for Internet, TV and phone service have an average bill of more than $170 a month.

Qualcomm, Netflix

A pay-TV service delivered through broadband networks would shake up the Italian market -- the country doesn’t have major cable providers. As part of its planning, Telecom Italia is considering strengthening its partnership with broadcasters and content providers, Patuano said.

In the U.S., Patuano visited Google Inc. Chief Business Officer Nikesh Arora and Qualcomm Chairman Paul Jacobs. He also met with executives from Cisco Systems Inc. and Netflix Inc.

Yet it is with AT&T that Telecom Italia has the most in common. In 2007, AT&T held talks to buy a stake in Telecom Italia, though backed down amid political opposition. After the discussions ended, Stephenson said AT&T was still interested in expanding in Europe, though didn’t plan to invest in Italy.

More recently, AT&T revived interest in Europe, having looked at a potential purchase of Vodafone, though it has so far refrained as it focuses on investing in the U.S. This year, the company plans to keep capital spending at about $21 billion.

“The first target now for a phone carrier is upgrading networks and transform it to a platform for high-value services,” Patuano said. “This is exactly what AT&T did and what we are calling for.”

--With assistance from Scott Moritz in New York.