Gianni, Origoni, Grippo, Cappelli & Partners Advises Telecom Italia Through Recent Changes

10/11/2013

As reported in the Q2 2013 issue of WLG Connections, Gianni, Origoni, Grippo, Cappelli & Partners was advising Telecom Italia on its proposed merger with Italian mobile operator, 3 Italia, owned by Chinese group Hutchison Whampoa. The outcome depended on many factors, the most important among which was the request by Hutchison Whampoa to become the principal shareholder of Telecom.

In July, this merger was suspended due to the lack of elements necessary to continue negotiations. However, this deal is closely linked to another important and
highly publicized transaction involving the spin-off of Telecom Italia.

The telecommunication company aims to spin off its landline grid into a separate subsidiary, which would lease access under the same terms to all operators, including Telecom Italia. It also aims to sell a “significant” minority stake in the new entity to Cassa Depositi e Prestiti, a state-owned infrastructure bank.

However, since Telecom Italia owns the only nationwide landline, it must receive approval from the Italian telecommunications authority (AgCom) before selling its services. According to the so-called “asymmetric regulation policy”, which limits the operator’s ability to profit from the network by setting leasing prices that favour rivals, it must be verified that rivals leasing its network have the ability to match the offer.

CEO Franco Bernabe has been negotiating with regulators and the European commissioner, Neelie Kroes. AgCom announced its decision during the presentation of the regulator’s annual report in Rome in July. Following the European Commission’s request to revise the high, “last mile” call rates that Telecom was charging its rivals (the regulator believed Telecom could negatively affect the other operators’ ability to plan and decide on the costs to apply in Italy), AgCom reduced the “last mile” call rate from EUR 9.28 to 8.68 (-6,47%).

As a response to this decision, Telecom temporarily halted its spin-off project as, according to the company, this new rate would decrease future revenues by EUR 110 million. At the same time, the negotiations between Telecom and Hutchison Whampoa were declared unsuccessful due, principally, to conflicts regarding governance.

On October 3, Telecom will hold an important Board meeting in which the future of the company will be discussed. The company has, in the meantime, been working on cutting costs and reducing debts: Telecom Italia Media sold broadcasting station La7 to Cairo Communications and 51% of Mtv Italia to U.S. giant Viacom.

Bernabe is seeking a capital increase from a new potential investor (such as Egyptian telecommunications entrepreneur Naquib Sawiris, Qatari-based funds, or Cassa Depositi e Prestiti) to also resolve the challenges created by the reduced “last mile” call rate. Another important item on the Board’s agenda is the September 24 acquisition by Spanish telecom company Telefonica of Telecom’s main holding, Telco, which controls 22.4% of the company. This deal makes Telefonica the principal shareholder of Telecom. Now the market is waiting to see what Bernabe’s plan may be.

Gianni, Origoni, Grippo, Cappelli & Partners continues to advise Telecom on its proposed spin-off.