Telecom Italia’s Q1 net profits nosedived by 40 per cent, to €364 million, while domestic sales plummeted 10 per cent as customers continue to rein in spending.

The disappointing numbers, which missed analysts’ earnings estimates, coincided with the authorisation by Telecom Italia directors to conduct an “in-depth” review of a possible tie-up between the company and Hutchison Whampoa’s Italian subsidiary.

An examination into spinning off Telecom Italia’s fixed-line access network, which might ease political opposition to a tie-up between the Italian incumbent and the Hong Kong-based conglomerate, is to be concluded on 23 May.

“There are no impediments to start a discussion with the other party in view of the possible completion of the transaction,” said Telecom Italia in statement.

Telecom Italia’s Q1 2013 revenues, at €6.8 billion, were 8.1 per cent down compared with the same quarter previously.

Domestic revenues, which accounted for nearly 60 per cent of group sales in the quarter, dropped 10.1 per cent, to €4 billion. Sales from mobile services were particularly badly hit in Italy, falling 17.9 per cent, €1.3 billion.

Telecom Italia blamed the “worsening economic outlook”, as well as regulatory and competitive factors.

The top-line performance at Telecom Italia’s Latin American operations was more encouraging.

Organic sales from Brazil, Telecom Italia’s largest international operation – accounting for 26 per cent of group turnover during Q1 2013 – increased by 5.4 per cent, to €1.8 billion. Argentina’s jumped 18.3 per cent, to €917 million.

However, Telecom Italia’s South American operations, where margins are lower than its domestic business, helped contribute to the fall in group earnings.