U.K. incumbent cuts financial outlook and suspends staff; CEO ‘deeply disappointed’ by telco’s improper practices.

BT issued a profit warning on Tuesday after revealing that the accounting scandal at its Italian business is bigger than first thought.

The U.K. incumbent also wrote down the value of BT Italy – which serves the business market – by £530 million (€613.8 million). When BT first revealed back in October that there were dodgy goings on in Italy, it wrote down the business by £145 million.

In a statement, BT said investigations carried out internally and by KPMG found that the extent and complexity of the inappropriate behaviour at BT Italy were far greater than previously identified. Evidence of improper accounting practices, improper sales, purchase, factoring and leasing transactions were found, resulting in the overstatement of BT Italy’s earnings over a number of years.

"We are deeply disappointed with the improper practices which we have found in our Italian business. We have undertaken extensive investigations into that business and are committed to ensuring the highest standards across the whole of BT for the benefit of our customers, shareholders, employees and all other stakeholders," said BT CEO Gavin Patterson.

BT has suspended several members of BT Italy’s senior management team and appointed a new CEO of the unit, who will take over on 1 February.

The scandal has forced BT to lower its outlook for fiscal third quarter adjusted revenue and adjusted EBITDA by around £120 million, and cut its free cash flow guidance by £100 million.

Looking further ahead to full year 2016/17, and BT now expects adjusted revenue to be £200 million lower than previously forecast, while its adjusted EBITDA outlook has been cut by £175 million. The company has lowered its free cash flow guidance by £500 million.

"For 2017/18, we would expect a similar annual impact to adjusted revenue and adjusted EBITDA as in 2016/17," BT said.

BT will publish its full fiscal third quarter results on Friday.