Telecom Italia gears up for change as NetCo sale looms

"The fun never stops," remarked Telecom Italia (TIM) CEO Pietro Labriola, in a tone that suggested the past two years have been anything but.

Here, Labriola was referring to the fact that much more should be revealed about TIM's future as a non-vertically integrated operator on March 7, when it hopes to present more details about its structure and strategy following the planned sale of its fixed-line grid to KKR.

Once the sale of the so-called NetCo goes through, TIM will operate as a service company (ServiceCo), retaining its retail consumer and enterprise businesses and its mobile network, for example. 

For now, Labriola and his management team are unable to say a great deal about what the future relationship between NetCo and ServiceCo will look like, and instead have to focus on TIM "as is" in terms of performance and outlook.

However, Labriola did note that Thursday's results call is "very important" for two reasons: "First of all, we disclose preliminary results for 2023, which is the second year since this management team took office. At the same time, it marks a turning point in the history of the group, as this is the last call about TIM [as we know it now]: a single, integrated company." 

KKR yet to notify EU antitrust authorities

Although he begged for patience among those analysts that track TIM, questions about NetCo were inevitable during the earnings call. Labriola was still happy to provide limited details, such as the expectation that the sale of NetCo will be closed in June or July.

There are still one or two remaining hurdles, such as the requirement to gain approval from European Union antitrust authorities. Labriola said he does not foresee any problems here as it is not a case of two similar telecoms players attempting to merge. 

According to a Reuters report in early January 2024, KKR had planned to notify the European Commission by the end of January about its plan to buy NetCo.

However, a spokesperson for the Commission confirmed that KKR has not yet formally notified it of the transaction. "If a transaction constitutes a concentration and has an EU dimension, it is always up to the companies to notify it to the Commission," the spokesperson said.

If all goes to plan, KKR is due to buy NetCo in a deal worth up to €22 billion (US$23.67 billion). Italian infrastructure fund F2i also recently confirmed plans to invest about €1 billion ($1.08 billion) in the purchase of around 10% of NetCo, while the Ministry of the Economy and Finance (MEF) has already pledged to buy a stake of between 15% and 20%.

Also still up in the air is the future of Sparkle, which is not included in the NetCo deal. MEF had submitted an offer of up to €750 million ($807 million) for the submarine cable unit, but TIM's board has now mandated Labriola to negotiate a "different offer" with the ministry as it deemed the initial offer to be unsatisfactory.

Record breaker

In terms of TIM's performance in 2023, Labriola was keen to emphasize that its management has been keeping a number of plates spinning in recent years, including the carve-out of NetCo, the negotiation of deals with buyers, building platforms for its future consumer and enterprise businesses, and promoting growth in Brazil.

Indeed, he suggested that TIM should be entered into the Guinness World Records in terms of the number of activities it is undertaking at the same time.

Despite all the challenges, he said TIM has been able to improve its domestic operations in what remains an extremely competitive market environment. "For the second year in a row, we present results in line with full year guidance on our metrics, something that never happened in the last 12 years," he said.

On the topic of recent market events, such as CK Hutchison's decision to abandon plans to sell WindTre's network assets, as least for now; Iliad's second failed attempt to buy Vodafone Italia; and rumors that Swisscom's Fastweb is also interested in Vodafone, Labriola made it clear that he sees a merger of two rivals as the best solution to repair the market.

"If you asked me if I should prefer Iliad-Vodafone or Fastweb-Vodafone, I should prefer Iliad-Vodafone," he said. He also made it clear that TIM would not be able to participate in any market consolidation efforts in a passive or active manner until after the NetCo deal has closed.

In 2023, TIM reported a 3.1% increase in group revenue to €16.3 billion ($17.5 billion). Group EBITDA (earnings before interest, tax, depreciation and amortization) rose 5.7% to €6.4 billion ($6.8 billion). The operator was also able to slightly reduce net debt to €25.65 billion ($27.6 billion) from €26.3 billion in Q3 2023. It said its transformation plan is on track, with €800 million ($860 million) in additional savings achieved in 2023.