Telecom Italia Board Approves Landmark Network Spinoff PlanDaniele Lepido
Telecom Italia SpA directors approved a plan to separate the carrier’s fixed-line network, setting a precedent for Europe’s indebted phone companies as they look for new ways to raise funds and bargain for lighter regulations.
The decision, made during a board meeting in Rome today, would allow Telecom Italia to spin off its copper and fiber assets, including street cabinets, into a new company, it said in a statement. The assets are valued at about 14 billion euros ($18.3 billion), a person familiar with the matter has said.
The board also authorized managers to continue talks to sell a stake in the new company to state lender Cassa Depositi e Prestiti. A split may soften regulatory scrutiny of the Milan-based carrier and let it focus on faster-growing services such as data and wireless. While phone companies have tried separating fixed-line businesses before, fully carving out an access network -- considered strategic by many governments -- would be unseen among European carriers.
“The network separation is a means for progressive generation of cash but that’s not able to solve the persisting problems in network access,” said Alessandro Frova, a professor of corporate finance at Bocconi University.
Telecom Italia will need to hold talks with Agcom, the country’s telecommunications regulator, and agree on a framework of rules governing the new company to ensure rivals have access to its transmission network.
As owner of an underlying network, Telecom Italia faces greater oversight than upstart rivals. The company must inform Italy’s communications authority at least 30 days ahead of any fixed-line phone and Internet offer so the watchdog can assess whether rivals can replicate the offering.
Spinning off the network could ease that regulatory burden since Telecom Italia would be a legally separate company that buys capacity and offers service to subscribers, just as other carriers do today.
Chief Executive Officer Franco Bernabe is considering a sale of an initial 30 percent stake in the new company to Cassa Depositi after a separation, people familiar with the matter have said.
Telecom Italia, based in Milan, jumped more than 2 percent from their intraday level after Bloomberg News reported the decision, confirmed by the company 53 minutes later. The shares closed 1.7 percent lower at 63.6 cents.
Telecom Italia is planning 10 billion euros in fiber-optic investments for its fixed-network unit after the spinoff, two people familiar with the matter have said. The spending, to be made over 10 years, will help the new unit, Opac SpA, offer faster Internet access and services including high-definition video, said the people.
“Opac SpA’s shareholders could get a good return of these investments because the company will probably work as a utility with strong cash flow,” said Andrea Rangone, a professor of business strategy at Politecnico of Milan. “Revenue and profits will be strongly influenced by the decisions of Italian authority which will regulate the unbundling, defining the price that other operators have to pay for access.”
A spinoff would bring regulatory benefits and generate cash that could help Telecom Italia reduce its net debt -- which at 28.8 billion euros at the end of March is more than double the company’s market value -- and invest in expanding coverage. Regulatory benefits are the company’s initial focus, two people said.
The project is complicated also because it would involve the transfer of as many as 20,000 positions, or one out of four workers at the company. In a statement, Italy’s Cgil union said network separation “raises a lot of doubts” and “doesn’t match the need for clarity about the industrial policy and the company’s future.”
Telecom Italia is separately evaluating a possible combination of its wireless unit with Hutchison Whampoa Ltd.’s 3 Italia, although Telefonica SA, Telecom Italia’s largest shareholder, remains skeptical of a transaction, people familiar with the matter have said. A merger would also likely attract antitrust scrutiny, analysts have said. Telecom Italia said on May 8 it plans to complete the review in 30 days.
Telco SpA, a group of investors made up of Telefonica, Assicurazioni Generali SpA, Intesa Sanpaolo SpA and Mediobanca SpA, is the biggest shareholder with a 22.4 percent stake.