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The Italian single broadband network just got more feasible

In early August, the Italian government carried out an unprecedented intervention, asking telecoms giant TIM to delay the selling of part of its last-mile internet cable network to the American private equity fund KKR.

The government hoped that TIM could consider alternative ways to work towards a single, unitary broadband network – perhaps a solution that would have included the State having decision-making power via the merging of TIM’s fibre assets with those of its rival Open Fiber, controlled by State lender CDP.

In truth, TIM’s CEO Luigi Gubitosi had signalled that the strategy that included the deal with KKR would have gone in that same direction through the creation of a newco, FiberCop, which would have been the launchpad for the future single network. Mr Gubitosi had also stressed that his company was not willing to give up control over its operations.

However, given the national interest behind ubiquitous high-speed broadband (and its potential to bridge the digital divide) the government saw it fit to push to ensure that it could have the power to overrule the private company in the future holding.

Back then, TIM agreed to push back the decision on the KKR deal to August 31st, and the time until now has been devoted by the government to finding a viable solution, capable of unlocking the impasse.

On Thursday a string of newspapers reported that a government meeting had drawn up a plan whereby TIM would retain the majority stake in the merger, but it would see its governance powers diminished. The plan will be presented to TIM on Monday, the same day in which the company is set to decide on the KKR deal.

This plan was presented to prime minister Giuseppe Conte by CDP’s managing director Fabrizio Palermo. It entails reserving the majority of board members, the selection of the chairman and the right of veto to CDP, while allowing the actual holder of the majority, TIM, to nominate the CEO.

So, it appears as if the TIM-KKR deal will be signed on Monday after all, leading to the creation of FiberCop, which will finish gathering other telecoms companies (it has already begun this process) and will then deal with Open Fiber. The possibility of a single (broadband) national network is now more concrete.

This is a turning point in geopolitical terms, too, as the entrance of an American fund in Italy’s network (albeit through a minority stake equalling to 37.5%) will likely be incompatible with the entrance of Chinese investors.

In the context of the ongoing economic and political “tech Cold War” between China and the US, which is also fought through investments and technology diffusion in foreign countries, this represents a win for Washington, who has been pushing to limit Chinese influence in allied countries (more on Italy’s position here).

It goes without saying that there are those who are less enthusiastic about this solution, although the plan was voted for unanimously within the executive. Stefano Patuanelli, minister for economic development, warned that the TIM-CDP deal “would have to be constantly monitored by the government.”

Mr Patuanelli’s party, the Five Star Movement (senior partner in Italy’s coalition government), was not exactly happy with the prospect of letting foreign investors in the national single network. The party’s co-founder and spiritual leader, Beppe Grillo, had made it abundantly clear that he believed allowing the Americans in would be dangerous. Now it’s safe to say that this line will is not likely to prevail.

“There’s one big caveat,” argued Nicola Porro, an influential Italian journalist: “How are [TIM’s and CDP’s] powers distributed? Who nominates the board, what prerogatives does the president have, who will oversee the delegations? To say that the devil is in the details, is reductive.”


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