Telecom Italia has finally unveiled its much-discussed restructuring plan, and plans to sell its Argentian arm to help fund a $4.5bn infrastructure investment.
Italy’s incumbent says it will invest €3.4bn ($4.5bn) over the next three years in next generation networks, cloud computing and LTE. To achieve this, and to seek a major headstart in 4G and quad play services, it needs to raise funds of around €4bn. This will be done through the sale of various assets, primarily its stake in Telecom Argentina ‘ said to have a market value of about €1.05bn – and the issue of up to €1.3bn in mandatory convertible bonds.
CEO Marco Patuano is trying to come up with a credible and strong plan to avoid further credit rating downgrades by strengthening competitiveness. He took the helm from Franco Bernabe only last month ‘ Bernabe resigned over clashes with Telefonica, which owns 22.4% of Telecom Italia, over the restructuring. Patuano’s strategy has the backing of the Spanish giant, according to reports by Reuters.
Investment will now be focused primarily on the home market, and also in Brazil, if TI holds onto that subsidiary. Sell-off is still an option, but would come after the Argentina deal is completed, if at all. The company has already received an offer for its 22.7% indirect stake in Telecom Argentina, and the board has authorized management to pursue the transaction. According to local media reports, the bidder is believed to be investment fund Fintech, which already holds shares in Telecom Italia’s Argentinian unit. Argentina accounted for about 13% of TI’s 2012 revenue, which also has a presence in Paraguay through the Telecom Argentina alliance.
Telecom Italia also plans to sell and lease back more than 17,000 mobile towers it owns in Italy and Brazil, and unload an Italian digital broadcasting unit. These two deals could raise more than €2bn. Telefonica still backs a sale of TIM Brazil, and Patuano has not ruled this out, according to Reuters, but for now, he was stressing the critical importance of operations in the high growth country to the group. TIM Brazil has a market value of $11.6bn and TI owns a 67% stake.
‘The plan for the three-year period 2014-2016 envisages some extraordinary transactions intended to strengthen the group,’ Patuano said in a statement. ‘These will allow us to boost development of ultra-broadband and accelerate our converging business strategy, and to achieve greater financial flexibility, preparatory to our achieving metrics over the life of the plan that are coherent with ‘investment grade’ status.’
In Italy, a total of €9bn will be invested over three years, of which €3.4bn will go towards next generation fiber and LTE networks. Within that sum, about €1.8bn will be allocated to ‘ultra-broadband’ fixed networks, €900m to LTE and LTE-Advanced, and €700m to the data centers to support evolving cloud networks and services, as well as international wholesale deals.
By 2016, the resulting next generation fiber network will reach over half the population, or 12.4m homes, while LTE will be accessible by 80%. Previous reorganization plans had often centered on TI selling off its fixed line business, despite opposition from some quarters of government. However, while Patuano confirmed the plan for the ‘voluntary separation of the access network’ ‘ which would, of course, make it easier to separate the businesses, though would complicate any quad play services – he added that full spin-off of the fixed operations would be assessed only after the Italian and European regulatory frameworks have been brought into line.
In Brazil, TI will spend 11bn reais ($4.74bn or €3.55bn) on network upgrades between 2013 and 2016, assuming it holds onto that business.
The telco also reiterated its financial targets for 2013, but added that ‘actual results may differ, even significantly, from those forecasted for the whole of 2013.’ It said its revenue in the first nine months of the year fell 7.6% year-on-year to €20.38bn, while core profits fell 10.5% to €7.93bn, both figures in line with market expectations. Adjusted net debt stood at €28.23bn at the end of September.