Telecom Italia Urged by Fossati to Spin Off Fixed Network
Telecom Italia SpA (TIT) would gain much- needed funds to revive growth and cut debt by spinning off its fixed-lined network, its second-biggest shareholder said.
“The time is ripe to go ahead with the spinoff,” Marco Fossati, whose family’s Findim Group SA owns about 5 percent of Italy’s biggest phone company, said in an interview. “This opportunity should not be wasted as the right conditions may be now, in the next two or three months, or never.”
Fossati’s comments raise the pressure on Telecom Italia Chief Executive Officer Franco Bernabe, who said last week the company plans to decide by the end of the year whether to spin off the network and allow other investors to take a stake. While the move would lessen the Milan-based company’s control over one of its biggest assets, it could free up resources to reduce debt that is currently double its market value.
“Fossati’s public support shows there is increasing pressure to go ahead with this deal,” said Robin Bienenstock, a London-based analyst for Sanford C Bernstein. “If Telecom Italia can get the state to invest through Cassa Depositi while keeping control of the network, that would be the best possible outcome.”
Bernabe said last week there is an “open dialogue” with state lender Cassa Depositi e Prestiti SpA about a possible investment in the network, adding that “other investors such as infrastructure funds may be interested in this project.”
Telecom Italia hasn’t specified other details of a potential spinoff yet, apart from saying that it wants to keep control of the network. In April, Bernabe said for the first time the company may consider separating its fixed-access network from its other business.
The operator’s fixed-line access network may be valued at between 13 billion euros ($16.9 billion) and 15 billion euros, according to Fossati. Funds raised from the sale of a stake in the grid could be used to cut debt or increase investments, Fossati said.
Telecom Italia forecasts adjusted net debt to fall to about 27.5 billion euros at the end of this year from 30.4 billion euros at the end of June.
In August, the company said first-half earnings before interest, taxes, depreciation and amortization declined 1.6 percent to 5.86 billion euros. Domestic fixed-line revenue dropped 2.9 percent to 6.47 billion euros and mobile sales in Italy fell 3.4 percent to 3.38 billion euros.
Telecom Italia fell 2 percent to 79.7 euro cents in Milan trading today, valuing the company at 14.8 billion euros. The stock has dropped 4.1 percent this year, compared with a 1.5 percent decline of the 23-member Bloomberg Europe Telecommunications Services index.
Fossati said an investment by the state lender would underline the “strategic nature” of the asset for the government. Bernabe has said that Telecom Italia would keep control of its access network, a condition also seen as “essential” to the plan by Fossati.
Societe Generale SA analysts said in a July 30 note that Telecom Italia would probably only recapitalize the network through new investors and not sell it. A stumbling block could be a potential demand by the state to separate the network as an independent legal entity to allow competitors to take a stake, the analysts said, adding that such an approach would be harsher than previous cases of network separation in other European markets such as the U.K.
In Britain, former monopoly BT Group (BT/A) established its Openreach unit in 2006, following an agreement with watchdog Ofcom to allow rivals to access its network. Other operators can buy services from BT on the same terms as the British company’s own businesses and Openreach’s engineering and systems capabilities are separate from the rest of the company.
In 2008, Telecom Italia created the Open Access division to manage the grid, bowing to regulatory pressure to improve access for competitors. Additional investors for Telecom Italia’s network would help to speed up necessary upgrades and enable companies and consumers to benefit from new digital services to boost economic growth, Fossati said.
Countries and companies are relying on fast broadband access to improve business processes, cut red tape and reduce spending as new applications such as remote health monitoring develop. Research cited by the European Commission indicates that a 10 percent increase in the broadband penetration might be able to boost gross domestic product by about 1 percent.
The biggest shareholder of Telecom Italia is holding company Telco SpA, through which Spain’s Telefonica SA and partners Mediobanca SpA, Assicurazioni Generali SpA and Intesa Sanpaolo SpA own about 22.5 percent of the operator.
Fossati also said the roll-out of new and faster broadband services in Italy should be based on Telecom Italia’s network.
Telecom Italia this month signed a cooperation accord with Fastweb SpA, controlled by Swisscom AG (SCMN), to share costs and investments in the construction of their high-speed next- generation networks.
The accord is open to other operators interested in co- investing in infrastructure based on the fiber-to-the-cabinet, or FTTCab, technology that runs cables to a street-level cabinet and then connects it to homes via copper wiring. Network company Metroweb SpA, whose investors include Cassa Depositi e Prestiti’s Fondo Strategico, plans to roll out fiber in some Italian cities adopting the so-called fiber-to-the-home technology, which brings fiber directly to homes and offices.
“There are no resources to waste, so rolling out two networks, it’s not doable,” Fossati said. “And Telecom Italia’s existing grid is the best starting point.”
To contact the reporter on this story: Chiara Remondini in Milan at email@example.com
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