February 27, 2020 / 2:45 PM / a month ago

Telecom Italia board meets to discuss KKR's proposals for Italian broadband

MILAN, Feb 27 (Reuters) - The board of Telecom Italia (TIM) met on Thursday to discuss proposals by U.S. investment firm KKR for a broadband investment in the country as the government pushes for a unified ultra-fast network.

Rome wants the former phone monopoly and smaller fibre-optic operator Open Fiber to create a single ultra-fast broadband player to avoid duplicating investments but a deal has so far proved elusive.

Economy Minister Roberto Gualtieri on Wednesday called for speedier progress on the strategic infrastructure, which will have some form of state oversight, and urged the parties to come to an agreement.

As negotiations stall and Open Fiber continues to roll out its network, TIM has invited infrastructure funds to consider an investment in the potential future combined fibre-optic entity.

Sources familiar with the matter said earlier this month that TIM was close to selecting KKR as a financial partner.

The sources said the U.S. investment firm had also expressed an interest in buying a minority stake in TIM’s so-called ‘secondary network’, or the cables, mostly made of copper, that run from the street to users’ homes.

The two options are not mutually exclusive, a source familiar with the matter said on Thursday, and could be both pursued at different stages.

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, one source said.

TIM CEO Luigi Gubitosi has said he views the combination with Open Fiber as 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.

On Wednesday Open Fiber’s chairman said a single broadband operator could be an option but only if the competition watchdog set the conditions. (Reporting by Elvira Pollina; Editing by Kirsten Donovan)

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