Telecom Italia mulls the wholesale fibre network conundrum

via Flickr ©  Wesley Fryer (CC BY-SA 2.0)

via Flickr © Wesley Fryer (CC BY-SA 2.0)

  • A single wholesale fibre network is considered the best solution 
  • But governance issues are getting in the way
  • TIM wants to merge with other fibre builders but losing voting control would be a step too far

Telecom Italia’s plan to become a ‘national champion’ on wholesale fibre access provision in Italy appears to be stumbling over a familiar conundrum around scale and competition.

The Italian government has been intervening to  piece together a deal to bring together TIM’s fibre network and Open Fiber, owned by state lender CDP and the Italian utility Enel. 

The idea was to merge their assets to create a single national champion to deploy fibre throughout Italy and then charge forward with a comprehensive roll-out to meet Italy’s push for comprehensive fibre access (like every other country in Europe). 

Given that the incumbent will be influencing pricing and terms and conditions of supply to the retail access providers, how could it be in control of a national wholesale network and still pass an antitrust smell test? 

Clearly with great difficulty. 

To complicate matters, according to Reuters Telecom Italia has insisted that it must have a controlling interest in any company set up to merge Italy’s fibre builders and could not accept less than 50% ownership of the resulting network. In response Italy’s deputy industry minister has stated that Italy’s single broadband network operator cannot be controlled by a majority shareholder, especially one that operates as a vertically integrated service provider, as would TIM in those circumstances.

What’s the way out?

Various solutions have been put forward. The obvious one, that TIM could retain the majority of the capital ownership of the network, but yield majority control to the board, appears to have been rejected by TIM’s Chief Executive, Luigi Gubitosi, who said he considered such an idea unworkable. However, Gubitosi said TIM was prepared to consider governance arrangements that might include qualified majority voting on crucial issues. 

Just to complicate things, CDP which jointly controls Open Fibre, happens to be TIM’s second largest shareholder.

Earlier, TIM had been trying to negotiate an alternative way out of the impasse, by looking to sell a minority stake in its fibre access network with US investment firm KKR which it considered would allay the ownership difficulties, but the Italian government was uncomfortable with this and requested that TIM negotiate a deal with Open Fibre instead. TIM agreed to postpone its decision on the KKR option until August 31st. 

Gubitosi says TIM is ready to show willing by “allowing decisions, strategies and aims to be shared like no other incumbent does,” in a way, he said, that went further than the model used by Openreach in the UK.

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