Big funds gear up to invest in Italy's broadband champion

Some of the world's biggest infrastructure funds including Australia's Macquarie and Singapore's GIC are considering first steps that could lead to them taking part in Italy's plans to create a national fast broadband champion, sources said. Italy is trying to engineer a merger of former phone monopoly Telecom Italia with its smaller rival Open Fiber to create a single ultrafast broadband operator and avoid duplicating investments worth billions of euros.

Last month, Telecom Italia (TIM) actively canvassed funds potentially interested in network investments and presented a list to the two shareholders of Open Fiber, state lender CDP and utility Enel. More than a dozen infrastructure and sovereign wealth investors, which also include Ardian and Brookfield, have signed or are considering signing non-disclosure agreements (NDA) to prepare bids for a stake in full-fiber carrier Open Fiber, the sources said.

Separating fixed-line networks from service businesses is seen as one of the few ways that legacy telecoms providers can create new value for shareholders. The steady returns are attractive for long-term investors. "Some of the funds have started to sign the NDAs and return them to TIM," one of the sources said.

TIM, CDP and Enel declined to comment. Representatives at Macquarie, Ardian and Brookfield declined to comment while GIC was not immediately available for comment. Rome considers a fibre-optic telecom network a strategic asset for Italy and is keen to build a nationwide network while keeping some form of state oversight. CDP, which owns half of Open Fiber, is also a top shareholder in TIM.

Besides valuation and regulatory issues, one stumbling block in the project has been TIM's fractious investor base. But recently relations between leading shareholders Vivendi and activist fund Elliott have improved, giving Chief Executive Luigi Gubitosi a boost in efforts to tackle the issue of a tie-up with Open Fiber.

On Tuesday, Enel CEO Francesco Starace said there had been no progress in talks to create a single network but acknowledged there was interest from a whole range of funds. The funds are expected to discuss initial proposals for a possible investment before Christmas but any formal bids will only come next year, one of the sources said, adding that the process was only expected to gain traction once the final structure had been clarified. "This is a slow-moving journey but most infrastructure funds are keen to get involved," the source said.