TIM somehow clarifies the details of the company split


TIM presented more detailed plans to separate its network operations from its services business, confirming recent reports that around half of its debt will go to the NetCo unit.

But NetCo’s financial situation could change quite quickly. TIM also noted that mergers and acquisitions remain an option, particularly merging the networks business with that of competitor Open Fiber or selling the unit to other investors. Only if the finances pile up, of course.

There are no big surprises in TIM’s separation plan, which was presented at its capital markets day on Thursday; there had already been reports in the news wires of a 50/50 split.

Some of this leaked information can be found in the presentation of the telecommunications operator. NetCo will take with it up to approximately 11 billion euros of debt, which represents approximately half of its adjusted net financial debt of 22.6 billion euros at the end of the first quarter. As expected, NetCo includes TIM’s core fixed-line business, its fiber-to-the-home (FTTH) unit FiberCop and international wholesale carrier Sparkle.

The entire restructuring is designed with the aim of generalized debt reduction. The NetCo transaction itself will contribute to this, TIM said, while underlining its intention to sell a minority stake in its Enterprise business – one of the three pillars of the ServiceCo business; more on that below – and the possible sale of other assets.

And, of course, the future ownership of the NetCo business itself is still very much undecided, and any deal would affect its financial condition.

“‘Combining’ with Open Fiber remains the priority/preferred option in order to unlock

synergies and enable the full value of TIM’s infrastructure network…but only if executed on terms attractive to equity and debt holders,” the telecom operator said in its presentation. In a footnote, he added that the word “association” could mean a number of things, including a complete sale of NetCo to Open Fiber. It’s an option that hasn’t seemed particularly palatable to telcos so far, but now it seems anything is possible.

If he fails to finalize a deal with Open Fiber, other options are on the table, including, but not limited to, a sale to investors; TIM notes that there remains a strong appetite for telecommunications assets among the investment community. Structural separation also remains a possibility.

Whatever the outcome, it’s pretty clear that TIM sees its future as a service company, a future it seeks to fund by capturing the value of its networks.

ServiceCo, as this part of the business is currently dubbed, will include TIM Enterprise, TIM Consumer and TIM Brasil. We are looking at business as usual for the end, with TIM focusing on revenue growth in mobile and fixed, accompanied by a fiber push, and tapping into new growth markets like IoT and consumer services beyond the IoT.

Change is underway at TIM Enterprise, which includes Noovle’s cloud business, Telsy’s security unit and Olivetti, among others. The telecom operator is looking to strengthen integration between these units and is looking to shift the balance of revenue generation from connectivity to cloud services. There wasn’t much to say on the subject of a stake sale, so we’re still watching and waiting for that one.

As has been well documented, TIM Consumer operates in a tough competitive market; its 34% decline in revenue over the past decade has been accompanied by a 30% increase in capital spending, TIM noted. This imbalance has been a trend across Europe, but TIM feels the pinch more than many; ARPUs remain low in the mobile market, while the fixed market remains highly competitive. The operator is considering infrastructure sharing and the possibility of consolidation in the market to consolidate things a bit.

There is no easy way out on this last point. Although there are ongoing network deployment partnerships between various operators in Italy, full consolidation is often discussed but rarely occurs; there was talk of a deal between Iliad and Vodafone earlier this year, for example, which came to nothing. And even if telecom operators might agree, they might struggle to convince regulators.

But that’s something of a digression, even if it demonstrates the context in which the new TIM – as well as the current TIM, of course – will operate, once its network assets have moved to a new home.

This separation plan, however, will take time to prepare. For now, the company is working on carve-out the finances and finalizing the capital structure of both companies. There’s nothing in today’s announcement about the company’s employees, but headcount is undoubtedly an important factor in the calculations.

Essentially, TIM said what we already knew, or at least suspected; that it aims to split in two, reduce debt and monetize these network assets in some way. There is still a long way to go in this restructuring.

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