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The European Commission has approved the sale of TIM’s fixed-line grid to KKR-led consortium
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TIM to operate as a ServCo following the completion of the sale, expected in summer 2024
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Deal marks first time a former telecom monopoly in a major European country is divesting its landline grid
Telecom Italia (TIM) has welcomed a ruling by the European Commission that means it will be able to proceed with its long-gestated plan to sell off its fixed-line grid to a consortium controlled by investment firm KKR, in a deal that could be worth up to €22 billion (US$24 billion).
The commission said on Thursday that it has approved unconditionally the acquisition by KKR of NetCo, which comprises the primary and backbone fixed-line network business of TIM as well as FiberCop, a joint venture between TIM and KKR comprising TIM’s secondary fixed-line network.
The move is notable as it marks the first time a former telecom monopoly in a major European economy is selling off its fixed network. The conclusion of the deal aligns with TIM’s mission to reduce debt and put its fixed and mobile services business on a firmer footing in the highly competitive Italian market.
TIM said the commission’s decision confirms that the transaction will be completed on schedule. The operator has previously indicated the sale is expected to be completed in summer 2024.
Once the divestment of NetCo goes through, TIM will operate as a service company (ServCo), retaining its retail consumer and enterprise businesses and its mobile network as well as TIM Brasil. TIM also still owns wholesale unit Sparkle, although this business is also potentially up for sale.
NetCo plan nears completion
The process to sell NetCo kicked off in July 2022, when CEO Pietro Labriola confirmed the management board’s intention to separate TIM’s fixed-line network infrastructure from the parts of the company that sell services and deal with customers.
KKR made a binding offer for NetCo in October 2023 and formed a consortium called Optics BidCo to manage the acquisition. Optics BidCo also includes Canadian pension fund CPP Investments, the Azure Vista subsidiary of the Abu Dhabi Investment Authority (ADIA), the Italian infrastructure fund F2i and Italy’s Ministry of Economy and Finance.
In its ruling, the commission said it had concluded that the transaction would not significantly reduce the level of competition on the market for wholesale broadband access services in Italy. It further noted that KKR and TIM have agreed on a master services agreement (MSA) that will govern the relationship between NetCo and TIM post-transaction, and said this agreement remains “reviewable under EU or Italian antitrust rules as well as subject to regulatory oversight.”
According to Reuters, which quoted unidentified sources, KKR has sought to address concerns of TIM rivals about their existing contracts put in place after the creation of FiberCop, and has offered a pledge to keep them on the same terms and prices.
TIM preparation
TIM meanwhile has already been preparing for a post-NetCo future, unveiling a new two-year industrial plan called “Free to Run” in March and highlighting that the sale of the fixed network will allow it to operate with fewer financial and regulatory constraints.
Although the objective is to reduce debt over time, TIM is still managing to spook the market with its debt levels, recently announcing that net debt increased by €1 billion to €21.4 billion in the first quarter of 2024 (Q1 FY24).
The operator is also now producing financial results that it said “simulates the effects of the disposal of NetCo as of 1 January 2022” and considers the effects of the future MSA with KKR.
In Q1 FY24, revenue increased 2.8% year-on-year to €3.5 billion, primarily boosted by the 8.1% growth to €1.1 billion in Brazil. EBITDA increased by 11.6% to €1 billion.
TIM held its last earnings call as a single, integrated company in February. By the time of the next call in July, it hopes that the NetCo deal will be largely completed.
