Vodafone's Italian subsidiary is suing Telecom Italia for allegedly abusing its dominant position in the country as the British telecom giant is seeking to overcome hurdles impeding profitability.

Vodafone Italy which is 77% owned by Vodafone is seeking damages of more than €1bn ($1.3bn, £869m) from Telecom Italia. The Italian company has committed a series of abuses from 2008 to 2013 "with the intention and effect of impeding growth in competition in the Italian fixed-line market", claims Vodafone.

Vodafone charged that it suffered severe customer loss due to Telecom Italia's dominant position in the market.

In addition, Telecom Italia allegedly restricted Vodafone Italy's ability to grow its fixed-line business, and forced it to pay artificially high costs to compete in the market.

Rising Competition in Europe

Last month, Vodafone said its first quarter income and sales were hit by regulation, rising competition and the ongoing recession across Europe.

First quarter service revenue at Vodafone fell 3.5% to £10.16bn, which is the fourth successive quarterly decline. In Italy and Spain, the company posted double-digit falls.

Service revenue in southern Europe plunged 14.4%. Italy was down 17.6% owing to "price reductions, a deteriorating economic environment and the ongoing impact of steep mobile-termination-rate cuts".

Spain fell 10.6% owing to a "lower customer base and the increased popularity of discounted-converged consumer offers in that market".

With the lawsuit, Vodafone intends to tackle its troubles in Italy where it finds market conditions tough.

Market Dominance Questioned

In May, Italy's competition authority imposed a fine of about €140m on Telecom Italia for abusing its dominant market position as owner and manager of the country's largest fixed-line telephone network.

Pressured by peers and authorities, the company is planning to spin off its fixed-line copper network that gives it a competitive edge.

The Vodafone case filed at the Court of Milan is the latest blow to Telecom Italia CEO Franco Bernabè, who is looking to restructure the group amid falling revenues in its fixed-line and online business. It had to write down a further €2.2bn in goodwill for the first half of the year, increasing its impairments close to €14bn since the start of 2011.

Telecom Italia rejected the allegations of Vodafone and said it was confident of demonstrating the correctness of its behaviour.

It is also appealing against the antitrust fine, which was imposed after a three-year probe prompted by rivals Wind, Italy's third-largest mobile operator, and broadband company Fastweb.