Luca Luciani, Telecom Italia’s CEO for Brazilian operations (TIM Brazil), has resigned in the wake of allegations that Telecom Italia exaggerated its customer base through the use of irregular SIM cards in Italy. Telecom Italia named its chief financial officer (CFO) Andrea Mangoni as interim CEO for Brazil, a clear indication of Brazil’s importance to the group.
Luciani’s resignation occurs on the heels of strong earnings performance, which has bolstered expectations for the company. “Since January 2009, the market share of TIM Brazil grew 3.1%, while its revenue jumped 18.7% in 2011 alone – the largest growth of all operators,” said Marceli Passoni, research analyst at Informa Telecoms & Media. “In addition, it has shown excellent results in long distance and data revenues.”
However, Luciani’s departure leaves TIM Brazil in a very delicate situation. Luciani stepped down after Italian prosecutors targeted him in an investigation into Telecom Italia’s alleged use of fake client numbers and SIM cards to inflate the appearance of its Italian customer base. Luciani has not been charged with any crime, but his name emerged last month following the conclusion of a five-year probe into the fraudulent activation of about 37,000 SIM cards, some which were issued to deceased or fictitious users.
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“[Mangoni]’s challenges are great, but I think it can be controlled because TIM currently has an executive team that is getting good results,” Luis Minoru, consultant director at PromonLogicalis, said. “The question and possible problem may be with respect to the company losing speed or focus if it fights a loss of investment. In a capital intensive sector, this may bring unnecessary difficulty to the operation. If he will stay or will appoint another, it is difficult to predict.”
TIM Brazil is currently the country’s second-largest wireless operator, accounting for 26.80% of market share. Number one is Telefonica’s Vivo, which has 29.81%, according to the latest Anatel report. TIM Brazil’s strong performance is largely attributed to Luciani’s leadership.
“Under his management, TIM has changed its strategy and has achieved better results compared to the situation back in 2008 and early 2009,” said Renato Pasquini, industry analyst for Latin America at Frost & Sullivan. “Before his arrival, the operator was losing its subscriber market share, losing second place to Claro in 2008, as well as losing profitability.”
Luciani led TIM Brazil after Telecom Italia sold its operations in Chile, Peru, and Venezuela to reduce its debt levels. At the time, the market speculated Telecom Italia could sell its Brazil unit, too.
“Luciani was able to gather a team of executives who quickly brought great innovation and operational and financial results,” Minoru said. “He managed to restore growth, taking second place in market share and without the expense of operational indicators. It is also worth mentioning that TIM Brazil ceased to be a target of speculation that it would be the one to be sold. On the contrary, TIM Brazil acquired Intelig and AES Atimus.”
Next steps
Given market concerns, TIM Brazil might go through a period of intense auditing of its operational and financial operations to ensure that lenders agree with its numbers, a process that could affect the value of its stock, explained Minoru.
Investors will also be watching TIM’s approach to upcoming LTE auctions in Brazil. After calling a 2.5 GHz auction premature and releasing a statement with several criticisms of the bidding process, Luciani said TIM Brazil would participate. He spoke during the company’s latest financial results conference call.
Buying spectrum and implementing LTE networks will demand a lot of effort from the carrier. “Moreover, it is important to remember that Europe is experiencing a period of economic instability and Brazil’s operations are of increasing importance for the Italian group. Thus, there must be great expectations about the operation’s performance in Brazil,” said Minoru.
“The challenge Mangoni faces will be maintaining the growth that TIM has been showing since the arrival of Luciani to command the country’s operations,” Informa’s Passoni said. Separately, in a statement, Macquarie Capital said TIM Brazil’s position could present Claro, the América Móvil-owned company, an opportunity to gain market share.
In addition, there is intense competition with Telefónica, América Móvil, Oi, GVT, and Nextel.
“I believe that the next CEO will have the mission to continue to deliver the results expected by shareholders and expand the company’s activities in Brazil,” Pasquini said. “It must continue expanding TIM’s fiber residential and business market in São Paulo and Rio de Janeiro, as well as the range of its HSPA + and LTE products, and other company initiatives.”
