OREANDA-NEWS. Fitch Ratings says it does not expect any impact on Telecom Italia's (TI) 'BBB-' Issuer Default Rating and Stable Outlook, following this week's announcement of the resignation of its CEO, Marco Patuano.

Fitch assumes there will be no overarching change to the current strategy being pursued by TI's management. This is broadly focused on sustaining its business position and gradually improving its financial profile.

An improving domestic market environment, TI's emphasis on network investment, improving financial performance and incremental plans to strengthen the balance sheet were all factors in our revision of TI's Outlook to Stable from Negative in November 2015. Our central case assumes TI's Brazilian operations remain a core part of the business but that any major change or consolidation of this market is treated as event risk.

With no insight as to who may be appointed as a new CEO, Fitch believes these plans are likely to remain central to management's intentions to improve TI's financial profile and credit metrics. We will continue to monitor the motivations or intentions of material shareholders, but have not factored any changes in strategy into TI's rating.

TI's mobile business showed solid improvement in 2015, with the pace of change accelerating in the second half, trends which we expect to continue in 2016. In fixed, the company's investment in fibre and a measured approach to content, are also considered the right approach. Fibre investment and to varying degrees content, have proven transformative for incumbents in more advanced European markets. Fitch considers this strategy is effective in reducing access losses, improving broadband take-up and ultimately stabilising revenues.

Fitch regards management's focus on accelerating network investment to be correct. Evidence in other incumbent businesses supports the case for both fibre and LTE mobile investment; with both expected to support increasing usage patterns and ultimately revenues. Fitch expects any near term cash flow pressures to be offset by the long-term benefits of strengthening the company's business position.

In terms of the balance sheet incremental steps are being taken. The disposal of TI's stake in Telecom Argentina has now closed, while Fitch believes a further sell-down in towers operator, Inwit is likely. The ongoing suspension of the ordinary dividend underlines an understanding of the need for cash preservation, while the conversion of the EUR1.3bn mandatory convertible to equity in November 2016, will provide roughly 0.15x of leverage relief.

These measures underline our view that management are committed to gradually improving leverage. Our rating case currently forecasts funds from operations lease adjusted net leverage of around 4.1x and net debt / EBITDA of 3.2x by YE16.