Italy Clashes With Ex-Monopoly Over Future of Phone Network

(Bloomberg) -- Italy’s drive to reassert control over its patchy broadband network has opened a conflict with the country’s largest telecommunications company, in the latest episode of state interventionism by Premier Giuseppe Conte’s government.

With Italy’s private sector reeling from the pandemic, Conte has pushed for a larger state role in the economy, giving the government more power to veto foreign investments and orchestrate state-backed takeovers in industries ranging from highways to the Milan stock exchange. The latest run-in with former state monopoly Telecom Italia SpA shows just how contentious this push can be.

Conte backs Telecom Italia’s plan to merge with its smaller rival Open Fiber SpA because it would avoid duplicate investments as Italy tries to close a gap in digital infrastructure that was laid bare by the coronavirus lockdown. However, his government wants Telecom Italia to give up control of the combined business to ensure competitors get fair and equal access to the national infrastructure.

A single network company “must guarantee, through procedures agreed upon by its main shareholders, independence” from other companies, Finance Minister Roberto Gualtieri said on Sunday.

It was the clearest signal yet that the government won’t stand by and let Telecom Italia Chief Executive Officer Luigi Gubitosi absorb the company’s rival without giving way on the issue of control.

Delayed Spinoff

The writing was already on the wall early this month when the government intervened at the last minute during a Telecom Italia board meeting to delay the approval of the spinoff of a minority stake in its fixed-line network and sell it to investors including private equity firm KKR & Co.

Gubitosi has said in recent months that Telecom Italia needs to keep control of the separated landline network, while making the assets available for use by competitors. Another test of wills looms early next month when the delayed meeting is due to happen.

Weighing over the talks is the punitive stance against Telecom Italia adopted by the Five Star Movement, the largest party in Conte’s coalition, according to a government official who asked not to be named discussing confidential talks. Five Star is set against Telecom Italia having a majority stake in any future merged company, the official said.

Italy is already lagging behind European peers in building an ultra-fast broadband network. Telecom Italia, saddled by 26 billion euros ($30.7 billion) of debt and with a bloated workforce, has been slow to modernize the network.

Further complicating things: Italy, through state-backed lender Cassa Depositi e Prestiti SpA, is already an investor in both Telecom Italia and Open Fiber.

Despite the warning from Rome, Telecom Italia is continuing to work on its plan with KKR, Corriere della Sera reported Tuesday, while Australia’s Macquarie Group Ltd. is completing a due diligence process and could in coming weeks go ahead with an offer for as much as 50% of Open Fiber.

Stefano Buffagni, Italy’s deputy minister for economic development and a Five Star member, wants Telecom Italia to be split in two, separating infrastructure from services.

“This would be good for the country and also for the company, because it would enable the entire network to be valued at market prices,” he told daily la Repubblica on Aug. 21.

The country risks returning to a monopoly of its phone industry if Telecom Italia doesn’t cede control, Franco Bassanini, a former minister and chairman of Open Fiber, warned in an interview earlier this month.

“I don’t think there’s a chance in the world that Antitrust Commissioner Margrethe Vestager could give the green light to a plan where Telecom Italia keeps its status of vertically integrated carrier,” Bassanini said.

©2020 Bloomberg L.P.