Flavio Cattaneo, Telecom Italia’s chief executive, has waded into the controversy about his €40m pay package, saying that the real “scandal” is that other Italian executives are richly rewarded despite failing at their jobs.
Mr Cattaneo has moved to quell questions over his pay package as shares in the former state telecoms monopoly have reversed months of losses, in part reflecting promises by the veteran media executive to triple targets for reducing costs to €1.6bn by 2018.
Analysts expect Telecom Italia’s domestic earnings before taxes, interest, depreciation and amortisation to grow this year for the first time in 13 years, and it is expected to do so again in 2017 and 2018 partly due to Mr Cattaneo’s aggressive cost-cutting targets.
Linked to this target is a pay package that, if his turnround works, would see the former chief executive of state broadcaster RAI and high-speed train group NTV take home a bonus of €40m in three years.
It is a figure that some shareholders have balked at being paid by a group weighed down by €27bn in net debt. Shares have risen from a one-year low in July of nearly 60 euro cents, but still trade at just 80 euro cents.
“The scandal is paying people who not only haven’t done anything but who have lost money, and that happens frequently in this country,” Mr Cattaneo, 53, said in an interview at Telecom Italia’s headquarters in Milan.
“We need more Italian remuneration structured this way . . . There would be a significant impact on the economy”.
Executive pay has become a significant social issue in Italy after decades in which it was considered off limits. Veteran banker Alessandro Profumo last month defended his €40m golden goodbye from UniCredit six years ago, negotiated after he left following weeks of shareholder discontent over its plunging share price.
Mr Cattaneo’s predecessor Marco Patuano received a €7m golden goodbye on his departure after a bust-up with Telecom Italia’s controlling shareholder, French tycoon Vincent Bolloré’s Vivendi.
The tough talk from Mr Cattaneo is not gloss, say people who know him. A senior banker says Mr Cattaneo is “not afraid to get in a fight to get the job done”.
Mr Cattaneo is not the first to try to turnround Telecom Italia, the debt-burdened former national monopoly that had become a joke among peers for having failed for more than a decade to implement an effective strategy amid cut-throat competition. But analysts hope his tough talking will finally show results.
Telecom Italia faces shrinking phone bills and tough competition in its domestic market as French telecoms tycoon Xavier Niel readies plans to launch in Italy. A similar move by Mr Niel in 2012 forced a damaging price war in France that hit local incumbent, Orange.
Meanwhile, energy group Enel, backed by the government of prime minister Matteo Renzi unhappy about Mr Bolloré’s large stake in the former state telecoms group, is launching a rival broadband service.
In Brazil, Telecom Italia’s business is vying with Telefonica’s Vivo trying to lure customers during a deep recession amid questions over its future.
“We have had everything happen to us over the last few months,” Mr Cattaneo admits.
In Brazil, Mr Cattaneo reiterates he does not intend to sell its business in spite of long-running rumours linking the group with a merger with one of the other local businesses.
As for Mr Niel, Mr Cattaneo credits him with doing “a good job in France” where he undercut incumbents to seize market share, but adds that in Italy “he has lost his element of surprise”.
“It will not be as easy for him here as it was in France. We are preparing ourselves,” Mr Cattaneo says, declining to elaborate. He notes Telecom Italia’s average revenue per user (arpu) is already lower than Mr Niel’s Free.
Analysts, too, see little room for a renewed price war. Since 2010 mobile revenues have plunged more than a third in Italy as competition increased.
Telecom Italia is also hoping to attract customers to mobile and broadband packages by investing in content and services, following other European rivals in offering bundles of telecoms and TV.
As for Enel’s plans to build a broadband network, Mr Cattaneo shrugs. “We are already there,” he says, pointing to a recent deal with rival Fastweb to create a service that takes fibre broadband directly to homes in 29 cities in Italy.
Analysts are becoming more confident in a company that has long underperformed for investors.
Charlie Gaynor, analyst at New Street Research, argues that Telecom Italia is “turning a corner after 13 years”.
Morgan Stanley analysts expect the Italian market to rebound, pointing to higher priced 4G services as well as more expensive bundles of TV, broadband and mobile.
Telecom Italia, which has long been linked with various potential suitors, is also “an attractive play on the potential pan-European consolidation,” argues Morgan Stanley analyst Luis Prota.
The M&A rumour mill has been recently fuelled by the arrival of Vivendi and Mr Niel on Telecom Italia’s shareholder list, even if the latter has since sold his position as he makes plans to launch mobile services in Italy.
However, Mr Cattaneo will not be drawn on Telecom Italia’s role in any M&A. Industry insiders speculate his endgame will be to slash costs, incentivised by his outsized pay package, to ready Telecom Italia for a sale to France’s Orange.
Senior bankers say there would be political and institutional opposition to this idea in Italy. Mr Bolloré is in a tight spot having antagonised Mr Renzi with his creeping stakebuilding and Italy’s former prime minister Silvio Berlusconi by calling off an agreement to buy the Italian tycoon’s Mediaset Premium, they say.
“We are not permeable to pressure. We are in the market with market rules,” Mr Cattaneo says.
Still, Mr Cattaneo is well connected in both political circles — he started his business career as chief executive of state broadcaster Rai under the government of Silvio Berlusconi — and financial ones. He was put on the boards of Telecom Italia and insurer Generali by Milan powerbroker Mediobanca.
He is also part of Italy’s beau monde with his wife Sabrina Ferilli, one of Italy’s best-known actresses who played the female protagonist Ramona in Paolo Sorrentino’s Oscar-winning The Great Beauty. In Italy, they have a reputation as a power couple to contend with.
When asked about his free time, he loosens up. “I have a demanding wife,” he laughs. “My free time is much reduced. Let’s say I have a second job”.