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Italy: Digital rollout hinges on TIM's future?

The new CEO of TIM, Pietro Labiola, has just made official an alternative to the purchase offer recently put forward by the KKR fund, the day after the publication of the group’s dismal results for 2021. This is a welcome proposal at a time when observers are concerned about the company’s ability to properly conduct fibre optic rollout in Italy.

TIM currently finds itself in a somewhat precarious position. Rising debt, general underperformance and profit warnings have led to shareholder unrest, constant management overhauls (four CEOs have been ousted in six years), poor results in 2021 and a proposal on March 2nd to split the company up, and the announcement of a €10.8 billion takeover approach form American investment fund KKR back in November 2021. TIM’s leading shareholder, Vivendi, voiced its increasing discontent with the company’s business strategy back in November, leading to yet more boardroom tension and the eventual resignation of then CEO and general manager, Luigi Gubitosi. When Labiola took over the company in January 2022, it was really in a bad state.

Adding fuel to the fire is increasing unrest among workers and subcontractors who have suffered from late payments, and who have begun to voice their fears over the development of a single network in Italy and the breakup of TIM into smaller entities, which could lead to job losses.

Superfast broadband rollout in Italy

Italy is lagging behind in terms of national digital coverage. But the future seems nevertheless bright, with the country benefitting from an influx of private and public investment, not least from subsidies in the framework of the European recovery plan and the ‘digital decade’. This includes a windfall amounting to almost €200 billion, i.e. a quarter of the European plan, and of which one of the priorities is specifically focused on the digital sector, as specified by the European Commission: “Measures to support Italy’s digital transition include investments to support the digitalisation of businesses and the expansion of ultra-fast broadband networks and 5G connectivity”.

Projects are in place to develop optic fibre in Italy, notably with TIM, with a view to a national plan and single network. This includes, notably, the investment of €8 billion in EU funding on broadband, 5G and satellite technology projects. TIM, being by far Italy’s biggest phone group, has been, until last year, somewhat reluctant to upgrade its copper lines, as it believed demand did not justify investments.

TIM has, however, set up a secondary fibre-optic network co-investment scheme known as FiberCop that was recently approved by Italy’s antitrust regulator Agcm following an investigation. FiberCop is 58% owned by TIM, 37.5% by KKR and 4.5% by Fastweb, and has been extending FTTH networks to more remote localities, aiming to have FTTH coverage for 75% of Italy’s grey and black areas by 2025. Ambitious objectives indeed, but recent turmoil surrounding TIM’s business practices have been raising doubts, not least among shareholders.

Partition on the horizon?

With the takeover bid from KKR already on the table, and after yet another management shake up at TIM, new boss Pietro Labriola has proposed an alternative proposal presented to shareholders with the backing of TIM top investors Vivendi and the state-run lender CDP, which would involve partitioning TIM’s domestic operations into smaller entities, in order to unlock value. Vivendi have already declared that they believe the KKR offer to be undervalued. Shares, however, tanked following the publication of the proposal, and there are poor forecasts for the year ahead.

The proposal would involve splitting the company in two, with an infrastructure arm and a services arm. “Such a move could facilitate a long-mooted merger of TIM’s fixed-access network with state-backed rival Open Fiber, a deal advocated by CDP and one that could improve broadband services for Italian households and businesses. The state lender owns a 60% stake in Open Fiber and 10% of TIM,” said Reuters.

Furthermore, in order to further shore up its finances, TIM has mooted selling its stake in the mobile tower group INWIT to French private equity firm Ardian, allowing it to raise €1.3 billion, as reported by La Repubblica.

KKR takeover, rising debt, an uncertain future… The continued instability at TIM is starting to spill into agitation within the workforce and beyond…

Workers agitated

The volatility at the top of TIM has manifestly trickled down to its workforce and service providers, with the latter often suffering from late payments, as is unfortunately often the case in Italy, as the past Massano Srl difficulties highlighted. The transaction delay, often “justified” by legal arguments, has a knock-on effect on the cash flow of subcontractors, ultimately leading to a delay in salary payments. This has led to a difficult situation for workers, such as those of the Sitel company in the telecom sector, who have been without pay for several months.

Thousands of TIM workers are now understandably fearing for their jobs, with the spectre of a partition throwing their employment status up in the air. Workers recently took to the streets to protest the possible partition.

“People working in customer care operations are the most exposed to jobs cuts if the management decide to break-up the group and sell its parts,” said Isabella Marotta, 43, a Telecom Italia employee since 2005, who was protesting in Milan, as reported by Reuters.

A problem for digital rollout?

All the bluster surrounding TIM does not bode well for the digital infrastructure project being pushed by Italian authorities.

Indeed, TIM was just recently handed a €116 million fine by the antitrust and competition authority (AGCM) and upheld by the Regional Administrative Court of Lazio, according to whom it has been “proven that Tim, while participating in the Infratel tenders, at the same time worked to try to prevent them” and that its conduct must be attributed to “a single strategy aimed at stopping the entry of new operators on the market…”

This approach clearly runs counter to the Italian government’s objectives in terms of digital deployment, and raises questions about how to optimise the use of the European subsidy, of which Italy is the main beneficiary, but whose benefits Italians may not be able to see in the near future.

This was posted in Bdaily's Members' News section by Michael Fiernes .