Italy pushing a telecommunications merger to break broadband breaks: sources

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MILAN / ROME (Reuters) – Italy's sovereign wealth fund seeks to achieve a multi-billion euro telecommunications merger and the elimination of a long corporate stalemate that has arisen with Rome's plans to create a national broadband network, says sources.

PHOTO FILE: Optical fiber cables are seen for internet providers entering Enel Group's server room in Perugia, Italy, June 23, 2017. REUTERS / Alessandro Bianchi / File Photo

Cassa Depositi e Prestiti (CDP) is a key shareholder, with 425 billion euros ($ 480 billion) of assets, in two critical building blocks of any national network, a former Telecom Italia (TIM) telephone monopoly and its Open Fiber, more competitive.

TIM and Open Fiber, owned by the CDP and Enel utility, are rolling out competitive fiber networks across Italy, raising concerns about duplication and investing waste at a time when Italy, a digital downturn, needs to catch up quickly. .

However, squading among the major foreign shareholders of TIM has introduced a broadband strategy to date on any combination of the two networks, asking CDP to try to break the disagreement, which sources are familiar with. on the CDP's thinking on the subject.

“CDP's plan is to… call calls for the creation of the single network,” said one source.

A state-owned CDP, which is under the supervision of the treasury, aims to organize a network merger in a way that will enable it to become TIM's largest shareholder. This would drive the change after tremendous months between TIM's current main shareholder, the French media group Vivendi, and investor No. 3, U. Elliott fund.

CDP has just under 10% of TIM and has put “the center of the game” in recent weeks, starting contacts with TIM and Vivendi executives, the sources said.

This effect is the result. On Thursday, TIM said they had signed an agreement with CDP and Enel to start discussions on ways to integrate their fiber network with their competitors, including potential mergers.

No final solution has been found, but all options examined are to merge TIM assets and Open Fiber network into a share-based transaction that would involve the CDP in TIM close to or above 23.9% Vivendi, said sources.

This could give the CDP a definitive vote on the TIM strategy and position it firmly to advance a government plan for the rapid development of a national broadband network.

Enel, CDP, Vivendi and TIM refused to comment.

WISHING: PROFIT INVESTMENTS

Under the CDP's main choice, TIM purchased a 50% share of the sovereign wealth fund in Open Fiber, using its shares as a payment, which the sources were familiar with CDP thinking and a banker with knowledge of the subject.

Enel, which is also controlled by the state's three-thirds share of 23.6%, would sell Open Fiber in a separate sale to institutional investors about this situation, which they added.

“The idea is that Enel provides her commitments to long-term investors. Enel's business (heart) is not, but of course it depends on the price, ”the banker said.

At this point, however, a fixed line broadband of Italy would be led by a TIM and is likely to result in competition regulators, so a CDP plan envisages that there will be other private investment to narrow the TIM position. , the sources said.

The data is not yet gone out, but eventually the assets of both networks could be placed under one roof outside of TIM, possibly under Open Fiber itself, and TIM emerging without just a minority , the sources and the banker said.

They said it was too early to speculate on the amount of private investment needed to achieve this outcome, but it could be billions of euro based on network valuations.

Telecoms analysts have carried out various assessments on both networks, showing different assumptions on future growth.

They value the fixed assets of TIM, fiber optic and copper wire, at 10-15 billion euros ($ 11 – $ 17 billion) and Open Fiber's fiber optic network exclusively at 2-8 billion euros.

An unified and regulated broadband network could be an attractive proposition for private investors, offering fixed and predictable returns.

DIGITAL DUTIES

Enel has a right to reject the part of the CDP in Open Fiber and can apply theory to CDP plans by implementing it. In practice, however, Enel joins the plan of Rome, another source familiar with the subject.

“(CEO Enel Francesco) Starace is meeting regularly with the CDP but it is clear that TIM is waiting for his house to be ordered in advance of any decision being made,” said this source.

The Government has the option of replacing Starace early next year when it is reappointed.

Elliott and Vivendi, who had been locked into a battle for years of age for board control at TIM, who recently met to resolve their differences in governance, said one person was close to the matter.

The analysts say that the analysts have the best chance that the MFF does not have an incentive to limit competition from competitive services, deliver the content and pricing required to encourage more of the Italians to go digitally.

In 2017, Italy had the lowest internet usage in western Europe with Greece, a problem that is deferring the development of a large digital economy earned by the G7 economy with a population of around 60 million people.

“The number of people in Italy with an interest in fast broadband services varies and so many rely on pricing. One network could awaken prices so that the role of the regulator is important, ”says Michele Polo, an expert in anti-trust issues and regulations at Bocconi Milano university.

“There is a danger that TIM will be using its dominant position,” said Polo, but he added to a strong regulation of dealing with this.

Telecommunications and the holders of Italian broadcasters have never faced the challenge of cable television that has applied connection speeds and prices down elsewhere.

Separation of fixed line networks is seen as one of the ways in which heritage telecommunications providers can create new value for shareholders. Morgan Stanley's analysts described infrastructure as “the most dynamic sub-sector in telcos” in a note on Friday.

Altice is considering selling its Portuguese fiber network, and TDC, and O2 in the Czech Republic, have already extended their networks.

Another Bocconi expert, Carlo Alberto Cardinale Maffè from the Bocconi SDA Management School, said that if it was intended to re-nationalize a TIM and leave it at a de facto control of a national broadband network, it would not work.

“I don't think it's in the interests of the CDP. It would take 20 years back and failed. The Italian and European regulators would never allow that, ”said Maffè.

Additional reporting by Gianluca Semeraro in Milan and Gwenaelle Barzic in Paris; Edited by Mark Potter

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