Debt-laden Telecom Italia cut its full-year core profit forecast and attributed much of the blame to stiffer competition in its domestic mobile market.

“In Italy, in a market characterised by strong pricing pressure especially on mobile, we responded firmly with highly competitive offers in the second quarter, investing a part of the margin to retain and attract new customers even through the use of innovative fixed-mobile convergent offers,” Franco Bernabe, chief executive, said in a statement accompanying the firm’s half-year results.

Previous guidance for full-year consolidated underlying cash profits, or EBITDA, had anticipated a “low-single digit” decline. That has been revised downwards to a “mid-single digit” drop. Domestic EBITDA guidance has been moved from a “mid-single digit” to a “high-single digit” decline.

First-half organic EBITDA for the group fell 6.8 per cent, to €5.24 billion, which was below analyst estimates.

The fall was primarily due to the greater weight of South American revenues (where margins are lower than the domestic business).

In H1 2012, Telecom Italia’s domestic business accounted for 61.2 per cent of group turnover, shrinking to 58.9 per cent during the first six months of 2013.

Group sales for the first six months dropped 7 per cent, to €13.76 billion, roughly in line with the €13.7 billion average estimate of four analysts compiled by Bloomberg.

Telecom Italia’s domestic business was nonetheless badly hit. Sales in Italy slumped 10.4 per cent, to €8.1 billion.

The operator highlights new mobile termination rates, brought into effect on 1 January 2013 by AGCom, the national regulator, as a major factor. The new rates require a 40 per cent reduction compared with H2 2012 levels, and a 72 per cent cut compared with H1 2012.

A regulatory squeeze on wholesale broadband prices in Italy has been an additional pressure.

After goodwill write-downs of €2.2 billion, related primarily to a worsening economic outlook in Italy and regulatory pressures on domestic wholesale prices, Telecom Italia posted a first-half net loss of €1.41 billion, compared with a net income of €1.2 billion a year earlier.

Excluding the write-down, it would have seen a profit of €800 million.

Telecom Italia confirmed once again its willingness to spin off its fixed-line network, which would help cut debt. It is still evaluating consolidation in the mobile sector after earlier talks with Hutchison to merge the companies’ respective mobile businesses in Italy broke down.

Net debt stood at €28.8 billion on 30 June 2013, down €1.5 billion from June 2012 but up €500 million compared with 31 December 2012. Telecom Italia aims to lower net debt below €27 billion by the end of the year.

“While the overall conditions also for the second part of the year continue to appear challenging,” continued Bernabe, “the company expects a gradual easing of competitive pressure, a more stable regulatory framework and an initial improvement in the economic performance”.