* Shares drop, EBITDA below forecasts
* To launch Italy service "before summer" (Adds share price, analyst and fund manager comment)
PARIS, March 13 (Reuters) - French telecoms group Iliad missed market forecasts for its 2017 profit increase on Tuesday due to losses related to its planned launch in Italy, knocking its already weakened shares.
Iliad, majority-owned by its billionaire founder Xavier Niel, said annual sales rose 5.6 percent from last year to around 4.9 billion euros ($6 billion) - in line with forecasts.
However, its 2017 consolidated core earnings of 1.78 billion euros - up 6 percent from a year ago - were below forecasts of 1.83 billion euros from analysts polled by Inquiry Financial. for Reuters.
Chief Financial Officer Thomas Reynaud confirmed Iliad will launch in Italy "before the summer", as part of plans to branch out from the competitive, domestic French market.
French telecoms, like elsewhere in Europe, are highly fragmented compared with the United States, but industry bosses have said they do not expect consolidation as many investors have hoped.
Iliad's shares, which rose around 10 percent last year, are down some 8 percent so far in 2018, underperforming a 5 percent fall on the STOXX Europe 600 Telecoms index and fell a further xx percent following Tuesday's results.
"Iliad expects higher margins in 2018, but this seems ambitious given the investments it is likely to make," said Gregoire Laverne, fund manager at Roche Brune Asset Management, whose firm has decided against owning Iliad shares.
Iliad's 2012 launch sparked a price war in the French telecoms and mobile market, as it set out to win business away from larger rivals such as Orange, Bouygues Telecom and Altice's SFR unit.
The Paris-based group has been a pioneer in packages that combine broadband internet, television and fixed-line telephones and is working on the next generation of its set-top box, dubbed Freebox, that is expected to be unveiled this year.
However, while it has seen strong growth in its mobile phone customer base, its fixed-line customer numbers have grown more slowly.
Iliad's planned entry into Italy follows its move in late 2017 into the Irish market, where Niel acquired a majority stake in eir - Ireland's former state telecoms monopoly.
Reynaud said the company's focus for 2018 would be on launching in Italy and on rolling out fibre-optics and 4G networks, rather than mergers and acquisitions. (Reporting by Sudip Kar-Gupta and Gilles Guillaume; Editing by Richard Lough and Alexander Smith)