Telecom Italia and Open Fiber crank up war of words over single network

MILAN (Reuters) - A war of words between Telecom Italia TLIT.MI (TIM) and Open Fiber over the creation of a single broadband network in Italy escalated on Tuesday as Telecom Italia called its smaller rival's business model a "failure".

FILE PHOTO: Telecom Italia logo is seen at the headquarter in Rozzano neighbourhood of Milan, Italy, May 25, 2016. REUTERS/Stefano Rellandini/File Photo

TIM has been in talks for months over a merger of its fibre network assets with those of Open Fiber, controlled by utility Enel ENEI.MI and state lender Cassa Depositi e Prestiti (CDP).

But differences over issues including governance and regulation have thwarted efforts to clinch a deal.

Replying to questions from investors ahead of a shareholder meeting this week, TIM said that any single broadband network should be controlled by a vertically integrated player since wholesale-only models had been a failure wherever they had been tried.

Italy’s biggest phone group, itself partly owned by CDP, is vertically integrated with its own retail arm, while Open Fiber is a wholesale-only venture that offers different operators access under the same conditions.

In a statement, Open Fiber said new EU regulations and Italy’s communications watchdog had pointed to wholesale-only as the best model for funding investments in a new superfast network.

“Investments which, in contrast, have not been made by the vertically-integrated operator, causing the delay our country now finds itself in.”

Rome is keen to create a single broadband player to avoid duplication of investment.

TIM Chief Executive Luigi Gubitosi has always said that a tie-up with Open Fiber is the most efficient solution to give Italy modern broadband infrastructure. But TIM has also made clear that it does not want to give up control of the network.

“We’re ready to talk to the government and (watchdog) AGCOM about regulated models like RAB (regulated asset base), provided that value for our shareholders is safeguarded,” TIM said on Tuesday.

Open Fiber said it had connected 8.5 million households to its network in about three years, making it Europe’s third-biggest supplier of fibre-to-the-home connectivity.

“(That is) a result far from a failure, judging by the uncompetitive methods used by the incumbent to obstruct it and the renewed interest shown in taking control of it,” it added.

Sources have previously said that TIM's biggest shareholder, the French media group Vivendi VIV.PA, and its No.3 investor Elliott both agree TIM should keep control of any future venture with Open Fiber.

The U.S. investment fund recently cut its stake in TIM to 6.97% from 9.72%. TIM said, in reply to a question, that this would have no impact on its governance.

Asked about its decision to reintroduce a dividend despite high debt, TIM said debt reduction remained the key priority.

“The distribution of a dividend does not interfere with this aim,” it said.

At a time when some companies are postponing shareholder returns to conserve cash to fight fallout from the coronavirus epidemic, speculation had grown that TIM might do likewise.

Reporting by Elvira Pollina and Stephen Jewkes; Writing by Agnieszka Flak; Editing by Louise Heavens, David Goodman and Kevin Liffey