The president of the regulatory agency AgCom, Angelo Marcello Cardani, is expected to address the question during the presentation of the regulator’s annual report in Rome on Tuesday. His remarks may clarify whether the spinoff plan, advanced by Telecom Italia’s chief, Franco Bernabè, stands a chance, as the company tries to snap its decade-long cycle of debt and spur growth in ts slowing domestic market.
The uncertain future of the fiber optic and copper wire network prompted Telecom Italia last week to abandon merger talks with 3, a mobile network operator group owned by the Hong Kong conglomerate Hutchison Whampoa that includes 3 Italia, the smallest of four network carriers in Italy.
For Telecom Italia, the nationwide grid is both an advantage and an albatross.
With its ubiquitous infrastructure, Telecom Italia has been able to combine its cellphone, landline, Internet and television services at prices that smaller rivals like Fastweb, owned by Swisscom, find hard to match.
But because Telecom Italia owns the only nationwide landline grid, AgCom has put limits on its ability to profit from the network by setting leasing prices that favor rivals and newcomers, a policy known as “asymmetric regulation.” Under that policy, Telecom Italia must first get AgCom’s approval before selling new services, to ensure that rivals leasing its network have the ability to match the offer.
Addressing a crushing debt of 28.8 billion euros, or $37 billion, the legacy of a series of leveraged buyouts in the 1990s, Mr. Bernabè is negotiating with regulators and the European commissioner responsible for the industry, Neelie Kroes, to permit a spinoff of the landline grid.
“This could be a very worthwhile move if it comes with the right conditions,” James Britton, an analyst at Nomura in London, said.
Telecom Italia wants to put its landline grid into a separate subsidiary, which would lease access under the same terms to all operators, including Telecom Italia, and has expressed a willingness to sell a “significant” minority stake in the new entity to a state-owned infrastructure bank, Cassa Depositi e Prestiti.
Such spinoffs remain rare in the telecommunications industry, where most former monopolies are unwilling to part with the inherited advantages of owning the biggest grid in a market. In 2006, the British telecommunications company BT spun off its landline business into a separate unit, Openreach. In 2011, Telecom New Zealand created a similar grid unit called Chorus and sold it to investors.
Italy may follow suit, but only if the former monopoly obtains significant regulatory concessions that improve its ability to compete domestically, according to analysts and people with knowledge of Telecom Italia’s deliberations. The talks over a potential sale of the grid are not expected to conclude until the end of the year at the earliest.
The prospect of those delays and the uncertainty over whether the landline grid will remain part of Telecom Italia contributed to the collapse of the merger talks with 3, according to a person with knowledge of the talks who was not authorized on behalf of the Italians.
The talks had begun in April when Hutchison Whampoa, which is controlled by Li Ka-shing, the Hong Kong billionaire, made an offer to merge 3 Italia with Telecom Italia in a deal that would have given 3 control.
Telecom Italia’s landline grid is considered a strategic national asset, according to the person with knowledge of the company’s deliberations, and the offer from Hong Kong goaded the Italian operator to advance plans to dispose of the grid before a sale.
“Paradoxically, it was the Hutchison feeler that brought it to a boil,” said the person. “Since realistically, the deal could not even be imagined with the network still inside the company, the question was brought back off the back burner, where it had been carefully kept for some years.”
Hutchison, frustrated by the delays, was left with little choice but to abandon the bid, the person said. On Thursday, Telecom Italia said that its board after consulting with Hutchison, had concluded that “there are not the elements necessary to start negotiations.”
3 Italia, in a statement, said that it was not continuing the talks, which it described as “very preliminary exploratory contacts,” because it would not be able to get approval for a deal from its owner, Hutchison Whampoa.
The breakdown of the talks was not a surprise, the person said. “Once the whole matter of the ‘network spinoff’ emerged it became clear to the Chinese that they’d have to wait a year to even have an idea of the perimeter of the object they proposed to buy,” the person said.
The Hong Kong-based group, which has carriers in six countries in Europe as well as others in Asia, has been expanding on the Continent, where its companies specialize in low-price calling plans with generous, often unlimited data downloads. Last week, it bought O2 Ireland from the Spanish operator Telefónica in a transaction worth at least 850 million euros.
Mr. Cardani of AgCom has not commented publicly on the spinoff plan since it was first raised in May.
Mr. Britton, the analyst at Nomura, said of Mr. Bernabè “I think there is a good chance he will be able to pull this off. He has shown himself to be pretty expert at navigating the political corridors around Rome.”
Article source: http://www.nytimes.com/2013/07/06/business/global/telecom-italia-seeks-to-spin-off-its-landline-grid.html?partner=rss&emc=rss