Telecom Italia strikes broadband JV with Fastweb

MILAN (Reuters) - Telecom Italia TLIT.MI and Swisscom SCMN.S unit Fastweb have agreed to create a joint venture that will invest 1.2 billion euros ($1.32 billion) to help speed up the rollout of an ultrafast broadband network in 29 cities across Italy.

A Telecom Italia tower is pictured in Rome, Italy, March 22, 2016. REUTERS/Stefano Rellandini/File Photo

The move will help Italy's biggest phone group fend off rising competition in high-speed Internet infrastructure, especially from power utility Enel ENEI.MI, which is seeking to establish itself as a credible rival by proposing to use its pylons and ducts to lay fiber optic cables.

Connecting homes to superfast Internet is a pet project of Prime Minister Matteo Renzi who is keen to close the digital gap between Italy and the rest of Europe and spur economic growth.

Renzi has openly championed Enel’s efforts to invest in broadband infrastructure after Telecom Italia dragged its feet. The Fastweb deal could help new CEO Flavio Cattaneo sweeten the somewhat soured relationship with the state.

The JV, which will be 80-percent owned by Telecom Italia, could be extended to other sectors, Telecom Italia said in a statement.

The new partnership will seek to connect around 3 million homes with a fiber-to-the-home broadband connection with speeds of up to 1 gigabyte per second.

The announcement came as the former state phone monopoly, controlled by French media group Vivendi VIV.PA, nudged up guidance for domestic core earnings this year after reporting better-than-expected first-half results, helped by a stronger performance from its mobile operations.

The company said it expects low single digit growth in domestic earnings before interest, tax, depreciation and amortization (EBITDA) in 2016 on an organic basis.

The company, which had earlier guided to “at least stable” domestic EBITDA this year, posted its best quarter for domestic operations since 2009 in the three months to June as efforts to turn around the heavily indebted group bear fruit.

First-half EBITDA for the whole group, which also includes its Brazilian operations, rose 2.4 percent to 3.726 billion euros ($4.09 billion), above a consensus of analysts’ forecasts of 3.62 billion euros provided by the company.

Sales at the former telecoms monopoly, which is seeking new sources of income as its traditional phone services lose appeal amid competition from Internet rivals, fell 9.9 percent, slightly less than expected.

Sales slumped 31 percent in Brazil, where the worst economic downturn in decades is weighing on disposable income for cell services.

TIM Participações SA, Brazil’s No. 2 wireless phone carrier and majority-owned by Telecom Italia, said earlier on Tuesday it would cut costs and capital spending to restore profitability over the next three years.

Reporting by Agnieszka Flak and Stefano Rebaudo; editing by Adrian Croft