August 5, 2013 / 11:35 AM / 4 years ago

Fitch cuts Telecom Italia to one notch above junk

MILAN, Aug 5 (Reuters) - Fitch has cut Telecom Italia's long-term rating to one notch above investment grade, citing regulatory pressure, a mobile price war and weak economic environment in Italy.

The ratings agency downgraded the former telecoms monopoly to 'BBB-' from 'BBB' with a negative outlook, saying the erosion of the company's cash flow was expected to continue into 2014.

"With regulatory and competitive developments, improving efficiency in operations and capital expenditure may not be enough to preserve profitability," Fitch said in a statement.

Telecom Italia warned on Friday its core profit would fall faster than it had previously thought in 2013, as a price war for mobile phone services and the deep economic recession in Italy bite.

The profit warning reignited concerns Italy's biggest phone group might have to tap shareholders for cash to meet its debt reduction target and keep an investment-grade rating.

Fitch said if the group was able to stabilise its domestic business and bring leverage under control, it fundamentally viewed Telecom Italia as an investment grade credit.

It also said Telecom Italia's liquidity remained healthy and allowed it to cover debt maturing until 2015.

Shares in Telecom Italia fell 1 percent to 0.486 euros by 1117 GMT, underperforming the European telecoms index, which was 0.3 percent higher. The stock has lost 22 percent in the last twelve months. (Reporting by Danilo Masoni; Editing by Louise Heavens)

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