Telecom Italia Takes First Step in Conte’s Single-Network Plan

(Bloomberg) -- After months of wrangling with the government, Telecom Italia SpA on Monday kicked off a state-backed plan to create a single Italian broadband network through the separation of its landline grid, the former monopolist’s most valuable asset.

Italy is racing to bridge the digital divide with European peers, and Prime Minister Giuseppe Conte has made telecommunications infrastructure one of the priorities of his push for a broader role of the state in the economy.

As a first step, Telecom Italia agreed to sell 37.5% of its landline cables running from the street to premises -- the so-called secondary network -- to the infrastructure unit of investment firm KKR & Co. for 1.8 billion euros ($2.2 billion). Swisscom AG’s Fastweb SpA will hold 4.5% of the new network company, which will be called FiberCop and have an initial enterprise value of 7.7 billion euros.

The plan should lead to a national broadband network company that would become a monopolist-like carrier, in line with Italy’s energy or power grid operators.

While the new company will still need to address a government request to migrate customers from copper to faster fiber connections, the deal marks a landmark opening by Telecom Italia, with the new company bringing in international investors and rivals getting network access in a bid for regulatory approval.

Telecom Italia on Monday also approved a memorandum of understanding with state-backed lender Cassa Depositi e Prestiti SpA paving the way for a future merger of FiberCop with Open Fiber, Italy’s other grid company. CDP is already an investor in both Telecom Italia and Open Fiber.

Italians should have access to the new network in around two years, CDP Chief Executive Officer Fabrizio Palermo said in an interview with la Repubblica Tuesday. “We’re pushing for a strong acceleration,” he said, acknowledging that the combination will need to satisfy regulators at national and European level.

The deal could be a win for Telecom Italia Chief Executive Officer Luigi Gubitosi, who needs to sell assets to cut into the company’s billions of euros in debt. At the same time, Gubitosi has made clear Telecom Italia won’t give up network control.

The new moves cap a remarkable turnaround in relations between Rome and the ex-monopolist, after the government intervened in early August to delay the stake sale to KKR. Telecom Italia will own at least 50.1% of the combined entity, to be called AccessCo, while the independence and third-party status of the company will be guaranteed by a shared governance mechanism, Telecom Italia and CDP said in separate statements.

The deal is expected to close during the first quarter of 2021, after regulatory approvals, Telecom Italia said.

Left out of any deals for now: Telecom Italia’s mobile tower assets, which earlier this year were grouped along with Italian towers owned by Vodafone Group Plc.

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