Telecom Italia CEO Revives Potential Open Fiber Deal

(Bloomberg) -- Telecom Italia SpA Chief Executive Officer Luigi Gubitosi is taking a fresh look at options for the company’s landline network, its most valuable asset, as he prepares to outline a new strategy for the struggling former monopoly.

Gubitosi plans to hire advisers to study ideas including a network-sharing deal or merger with smaller rival Open Fiber, according to people familiar with the matter, who asked not to be identified as the deliberations are private.

The CEO needs a plan for the grid with top investors fighting over the fixed-line business and the government calling for a single network. Italy’s communications regulator complicated matters over the weekend by rejecting a proposal by Gubitosi’s predecessor to legally separate the network, a move that would set up the business for potential deals.

The carrier’s shares are down 41 percent over the last 12 months as rising competition bites and the boardroom battle creates uncertainty. Telecom Italia fell as much as 2.9 percent on Wednesday, hitting a record low of 43.3 euro cents. It was trading down 1.2 percent at 44 euro cents as of 9:07 a.m. in Milan.

Representatives for Telecom Italia and Open Fiber declined to comment.

Open Fiber, a joint venture between utility Enel SpA and state lender Cassa Depositi e Prestiti, competes with Telecom Italia in selling wholesale broadband connections to communication providers. The challenger established in 2015 is a fraction of the size of Telecom Italia’s network business, which has been valued by analysts at about 15 billion euros ($17 billion).

One hurdle to a full merger with Open Fiber is convincing its owners: The CEO of Enel, Francesco Starace, vowed in November that he’d never exit the business.

The notion of a deal with Open Fiber isn’t brand new: former CEO Amos Genish was looking at a commercial arrangement with Open Fiber before his ouster in November, and had previously said he was even warm to the idea of combining assets.

Genish was removed by allies of Elliott Management Corp. because he opposed the U.S. activist’s push to relinquish control of the network, a move the carrier’s biggest investor Vivendi SA is also trying to block. Vivendi has been trying to reassert its influence at Telecom Italia since Elliott won board control last May.

Network Control

Among options under consideration by Gubitosi, brought in to replace Genish, is whether to spin out the network business as a separate listing and give up control, the people said. He plans to first continue with Telecom Italia’s plan to make the business a separate legal entity to provide more transparency, they said.

Regulator Agcom said the legal separation wouldn’t reduce the regulatory burden on Telecom Italia because the company would retain a “significant competitive advantage.” There’s a 45-day public consultation period, in which the company could propose changes.

Gubitosi is also considering options to extract value from Telecom Italia’s wireless tower unit Inwit SpA, said the people.

The CEO has an opportunity to present a vision to shareholders on Feb. 21, when the carrier reports full-year financial results. Telecom Italia’s first big move under Gubitosi was to issue a profit warning last week for its domestic unit, which is battling a new low-price mobile entrant in the market, Iliad SA.

Telecom Italia’s domestic business is trading at a 25 percent discount to peers -- or 50 percent when considering the 15-billion-euro network division -- Mediobanca analyst Fabio Pavan wrote in a note. At the February meeting, Gubitosi could announce a bigger plan for the grid separation, including selling a stake, Pavan said.

Milan-based Telecom Italia is among the most leveraged of European telecom carriers and faces steep pension liabilities. It hasn’t paid a dividend on its ordinary shares since 2013.

--With assistance from Chiara Remondini.

To contact the reporter on this story: Daniele Lepido in Milan at dlepido1@bloomberg.net

To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net;Dan Liefgreen at dliefgreen@bloomberg.net

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