Telecom Italia picks KKR as exclusive partner for Italian broadband

Italy’s government wants the former phone monopoly and smaller fibre-optic operator Open Fiber to create a single ultra-fast broadband player to avoid duplicating investments.

A deal has proved tough to hammer out, prompting Economy Minister Roberto Gualtieri on Wednesday to urge the parties to come to an agreement quickly to speed up progress on a strategic infrastructure. TIM said in a statement Gualtieri’s comments were “significant” and that the project with Open Fiber would help overcome the digital divide still existing in many part of the country.

Chief Executive Luigi Gubitosi will continue discussions on the plan and inform Italian institutions in line with existing laws that give the government special powers to intervene in sectors deemed strategic, TIM said.

Italy’s government wants to be kept abreast of developments in talks with KKR and of any agreement, a person close to the matter said.

As negotiations stalled and Open Fiber continued to roll out its network, TIM invited infrastructure funds to consider an investment in the potential future combined fibre-optic entity and KKR emerged earlier this month as the preferred bidder.

KKR will support TIM as the group seeks to reach a deal with Open Fiber, a source with knowledge of the matter said on Thursday. The US investment firm would still be TIM’s partner if an accord with Open Fiber failed to materialise, the source said.

Sources have said KKR has also expressed an interest in buying a minority stake in TIM’s last-mile network - the cables, mostly made of copper, that run from the street to users’ homes. The source said KKR could buy a 42-43% stake.

Debt-laden TIM, whose underperforming business is dogged by rising competition at home, can ill afford the heavy investments needed to upgrade its last-mile network.

KKR, which sources have said values TIM’s last-mile network at 7.0-7.5 billion euros, could help finance the fibre-optic rollout needed for the upgrade. Gubitosi has always said the combination with Open Fiber is the most efficient solution to provide Italy with the modern broadband infrastructure the government is keen to have.

But divergences on asset valuations, the structure of a potential combined entity and its governance as well as regulatory issues have so far hampered an accord. Open Fiber is jointly owned by state utility Enel and Cassa Depositi e Prestiti (CDP), the state lender which is also a key investor in TIM with a 10% stake.

TIM’s top shareholder is French media group Vivendi with a 24% stake while U.S. investment fund Elliott has around 9.8%. Both agree Telecom Italia should keep control of any future venture with Open Fiber, sources have said.