Enel SpA agreed to merge its fiber unit with Metroweb Italia SpA as Italy’s largest utility prepares to challenge Telecom Italia SpA in building fast broadband networks in a country where average landline internet speeds are among Europe’s lowest.

Combining with Metroweb will jump start Enel’s efforts as the utility prepares to invest about 3.7 billion euros ($4.1 billion) to cover 250 Italian cities in phases with fast internet connections. The deal is a blow to Telecom Italia, the country’s largest phone company, which had also been courting Metroweb. Prime Minister Matteo Renzi is trying to speed adoption of fiber broadband in Italy, which lags behind its peers in fast internet connections.

"With this transaction, we are taking a further, major step towards the realization of important infrastructure for Italy,” Enel Chief Executive Officer Francesco Starace said in a statement Thursday.

Metroweb operates a fiber-optic network in Milan, Italy’s business center, and is controlled by infrastructure fund F2i SGR SpA and state lender Cassa Depositi e Prestiti SpA. Interest in Metroweb has been heightened by Renzi’s goal of covering the entire country with faster Internet connections by 2020.

Cassa Depositi e Prestiti and Enel will have an equal stake in the combined company after Metroweb was assigned an enterprise value of 814 million euros ($903 million) and Enel’s fiber unit is recapitalized by the two investors, according to the statement.

A push into broadband services allows Enel to put its transmission towers and power cabinets to a second use and will add a revenue source as the utility tries to cope with slowing electricity demand. Access to Enel’s networks could make it easier for Telecom Italia’s rivals, including Vodafone Group Plc, to provide faster web access to customers, who increasingly use online services to watch movies, TV shows and live sports.

Enel also plans to cover 9.5 million households in Italy with so-called fiber-to-the-home connections that reach all the way into people’s houses or apartments by 2021, the company said.

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