Combining TIM and Open Fiber’s fixed broadband assets would create a unique market structure in Europe, securing regulatory clearance could be difficult
The latest twist in the long-running single broadband network saga: On 29 May 2022, TIM announced that it had signed a non-binding memorandum of understanding (MoU) with domestic rival Open Fiber and investors CDP Equity, KKR and Macquarie to merge the fixed network assets of TIM and Open Fiber. Following some setbacks and changes in leadership, the MoU initiates the process to create a single, non-vertically integrated telecoms network operator, partially intended to accelerate the rollout of fibre infrastructure across Italy. The parties aim to have signed any binding agreements by 31 October, which would put to an end many months of uncertainty for all involved.
Creating a national champion fits with TIM’s domestic strategy: While technical integration details will need to be ironed out, the MoU will be viewed positively by the Government, which has favoured the creation of a single broadband provider in Italy to drive network deployments and economic recovery post-pandemic. The preliminary agreement also aligns with TIM’s strategic goals, with its CEO proposing a ‘new industrial plan’ in March 2022 to carve out domestic fixed infrastructure from the rest of the business. After a turbulent period, completion of the Open Fiber deal would allow TIM to focus on the Italian retail market and present it an opportunity to monetise network assets, which could reduce debt and improve profitability. Meanwhile, the potential merger appears a consolation prize for KKR, which failed to acquire TIM in November 2021 with a bid that valued the telco at close to €11bn.
The deal might struggle to get regulatory approval: As previously noted, combining the networks will face antitrust scrutiny from both Italian and EU authorities, not least because it would remove competition in wholesale fibre access in one of the bloc’s largest markets. The European Commission has spoken out against the creation of a wholesale monopolist, while Italy’s competition body, the AGCM, has previously remarked that infrastructure-based competition is essential to the country’s telecoms market, delivering better outcomes for consumers. A previous attempt to merge the firms’ networks, with TIM maintaining the controlling-stake, failed in 2020 over competition and valuation issues. Though the MoU envisages CDP being in control of the merged entity, further commitments (e.g. around independence or oversight) will likely be necessary for the transaction to stand any chance of receiving regulatory approval. Even if this could be secured, Italy’s market structure would be a unique case in the region, where other markets are relying on competing networks to further the availability of gigabit-capable broadband.
Source: https://www.gruppotim.it/en/press-archive/corporate/2022/PR-MoU.html
