Casting off service clothes for swim in the infrastructure
Pietro Labriola, CEO Telecom Italia (TIM) is confident of clinching a preliminary agreement to merge Italy’s biggest phone group’s network assets with those of rival Open Fiber within days. Described as a ‘debt laden former phone monopoly’ by Reuters, TIM is being led by infrastructure specialist Labriola, a former TIM engineer, to concentrate on splitting its services businesses from its wholesale network operations. However, the divorce of two very different cultures has been questioned by stakeholders. Its chief critic was US private equity fund holder KKR, whose takeover approach was itself fought by majority stakeholder French media giant Vivendi, which supported Labriola’s nomination for CEO.
Are we there yet?
As part of Labriola’s break-up plan, TIM had entered talks with state lender Cassa Depositi e Prestiti (CDP) to revive a plan to add its fixed network assets to those of broadband rival Open Fiber. CDP owns 60% of Open Fiber and 10% of TIM. To ensure state oversight of a strategic asset it must have full control of any combined network. “There have been some delays but stakeholders are interested in carrying out the project, I don’t see problems,” CEO Pietro Labriola said after TIM’s first quarter results. In April 2022 TIM Mobile Europe reported that infrastructure operator FiberCop has signed an agreement with telecoms operator TLC Telecomunicazioni to speed up the rollout of a fibre optic telco infrastructure for Italy.
Labriola said KKR and another private equity stakeholder Macquarie, which hold minority stakes in TIM’s grid and in Open Fiber respectively, are involved in these new discussions too. The boardroom fight was joined by activist investor CVC Capital Partners, which made a €6 billion bid for TIM’s enterprise service arm. Since then, other fund holders have expressed interest in investing in TIM assets. Labriola told Reuters he aims to flesh out details of his own turnaround plan, to be presented at a Capital Markets Day in July, before assessing which partners would best fit with it.
Support from banks
TIM has started talks with trusted banks for a new credit line worth around €3 billion (US$3.3 billion) that could be partly guaranteed by Italy’s trade insurer SACE. TIM has initiated talks with a pool of banks UniCredit, BNP Paribas, Credit Agricole and Santander over the credit line deal. Under a guarantee scheme Italy used in the first COVID-19 wave in 2020 to help companies raise new debt, SACE is allowed to cover up to 80% of financing. Some financiers close to the deal have questioned if TIM is eligible to tap such a scheme.
Telecom Italia shares were down around 0.6% at 0900 GMT on the day of the announcement, Thursday May the 5th, after the company also reported a 16% drop in its core profit in the first quarter. This was attributed by Reuters ‘experts’ to TIM’s ‘weakness’ in its hyper competitive domestic market. TIM stuck to a full-year forecast of a ‘mid to high teens’ drop in core profit, after posting a 2021 net loss of €8.4 billion.