The Swiss phone and internet provider said the private customer sector of Fastweb, which it acquired in 2007, had come under pressure in recent months.
The company will remain in profit in 2011 despite the setback.
"This development has been triggered by the difficult economic environment in Italy due to the financial and sovereign debt crisis," Swisscom said in a statement.
The firm also cited an increasingly saturated broadband market and intense price competition.
As a result Swisscom, which invested €4.6 billion to buy Fastweb, took a write-down on the value of the business of €1.3 billion.
Its 2011 net profit will be hit by 1.2 billion francs, said the firm, which earned a 1.8 billion net profit last year.
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"The purchase price for Fastweb in 2007 was appropriate given the situation at that time. Since then, however, economic conditions in Italy have deteriorated considerably," Swisscom said, adding that its shareholder dividend would not be affected.
"Fastweb is being put on a solid basis once again", with a new business plan, the company said.