Fitch affirms Telecom Italia

Fitch Ratings said it affirmed Telecom Italia SpA's long-term issuer default rating and senior unsecured ratings at BBB and the senior unsecured ratings of Telecom Italia Capital and Telecom Italia Finance SA at BBB.

The outlook is stable.

The agency said the affirmation reflects the company's high domestic margin performance and the relatively strong domestic market position, which should underpin future cash flow performance, along with the growth potential of its mobile operations in Brazil.

The ratings are constrained by the unadjusted net debt-to-EBITDA ratio, which Fitch said has proven stubbornly difficult in recent years to bring down from a level of around 3 times. The company's current plan does not envisage the metric falling to the 2.5 times threshold - the level that the agency considers consistent with a rating at the higher end of the BBB range - until 2011.

Nevertheless, Fitch said it acknowledges management's commitment to improving the financial profile of the business and that management has set out clear objectives intended to improve cash flow generation and reduce leverage materially.

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