Telecom Italia’s Postpaid Surge Masks Broadband Struggles in Q1 2025 Earnings

The Q1 2025 earnings call for Telecom Italia S.p.A. (TIIAY) revealed a company navigating stark contrasts: robust momentum in its postpaid mobile segment contrasts with challenges in prepaid and broadband markets. While financial metrics such as a 50% year-over-year (YoY) surge in net income and a 6.7% rise in EBITDA highlight operational discipline, management’s candid discussion of strategic risks underscores the need for caution in this evolving telecom landscape.

The Postpaid Payoff
Telecom Italia’s postpaid mobile business is its crown jewel. The segment’s 14% YoY user growth—driven by price adjustments, migrations from prepaid and control plans, and strong retention—propelled mobile revenue up 6.2% YoY. CEO Alberto Mario Griselli emphasized that Q1 price hikes, coupled with effective customer migration strategies, are key to sustaining this trend. The success here is notable: postpaid’s higher average revenue per user (ARPU) and recurring revenue streams are critical for margin expansion.

Operational Gains and Strategic Focus
Network modernization and digitalization are fueling operational efficiency. The rollout of 3,000+ upgraded sites boosted coverage by 40%, while AI-driven cost optimization improved EBITDA margins by 80 basis points to over 48%. Meanwhile, the B2B IoT division—a focus area for diversification—is thriving, with strong growth in agribusiness, logistics, and utilities. These segments now account for 12% of service revenue, up from 9% a year ago, signaling a promising avenue for future revenue streams.

The Prepaid Problem and Broadband Blues
Despite postpaid’s brilliance, Telecom Italia’s prepaid segment is faltering. Recharge volumes are declining, and management admits the shrinking market requires aggressive loyalty programs and channel adjustments to stabilize. Meanwhile, TIM Live’s broadband division faces a perfect storm: saturated markets, cutthroat pricing from rivals, and the phaseout of legacy copper networks. While inorganic growth options (e.g., acquisitions) are under consideration, execution risks remain.

Inflation is another headwind. Lease payments for network infrastructure are rising, forcing the CFO to renegotiate terms and decommission underperforming towers to keep lease costs below revenue growth. This balancing act could strain margins if costs outpace top-line gains.

Q&A Insights: Balancing Growth and Risk
During the call, management outlined plans to mitigate risks:
1. Prepaid Revival: New offers and loyalty programs targeting younger demographics aim to reverse the segment’s decline.
2. Price Discipline: Front-book price increases will be deployed to counter competitive irrationality.
3. Broadband Innovation: TIM Live’s inorganic growth strategy—potentially through partnerships or acquisitions—could unlock scale in a fragmented market.

However, the path forward is fraught. Postpaid growth is expected to moderate, and ARPU gains could be diluted by migrations from lower-margin prepaid plans. The company reaffirmed its 5% YoY revenue growth target for 2025 but warned that broadband and prepaid headwinds may require aggressive cost controls to sustain margins.

Conclusion: A Dual-Track Opportunity, But Risks Linger
Telecom Italia’s Q1 results paint a company split between triumph and turbulence. The postpaid and IoT segments are undeniable strengths, underpinned by 14% user growth and 12% revenue contribution from B2B IoT. These positives, combined with a 20% YoY jump in operational cash flow and a 50% net income surge, suggest strong execution under CEO Griselli.

However, the prepaid segment’s decline and broadband’s stagnation are red flags. Investors should closely monitor whether TIM can stabilize prepaid through loyalty initiatives and revive broadband via strategic moves. The stock’s valuation—trading at 8.2x 2025E EV/EBITDA—appears reasonable if these challenges are managed. Yet, with inflation and competitive pressures lingering, patience may be required.

In short, Telecom Italia is a compelling story for those willing to bet on its postpaid and IoT momentum, but the broadband and prepaid questions make it a stock for long-term investors with a high risk tolerance.