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Vodafone’s Italian Venture: Merging, Selling or Staying Put?

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In a recent twist, Vodafone is reportedly considering selling its Italian operations to Fastweb. With TIM unveiling the composition of NetCo, its business aspects for sale to KKR, the Italian telecoms market is abuzz with speculation. The frequent reshuffling attempts by TIM, along anticipated network sales of Wind Tre, and persistent matters concerning Vodafone’s status in the sector, make the Italian telecoms landscape a dynamic arena.

Amid this, news arises about the interest of fixed and broadband operator Fastweb in a possible integration with Vodafone Italia. Though largely speculative, a Bloomberg report indicates Swisscom-owned Fastweb potentially purchasing Vodafone’s local unit or even considering a merger.

Based on the market dynamics, a hypothetical M&A venture involving Fastweb and Vodafone seems rational. As per AGCOM, TIM dominates Italy’s residential fixed broadband market with approximately 39% share, while Vodafone, Wind Tre, and Fastweb follow closely. However, a potential Vodafone/Fastweb entity could inflate its market share to over 30%, considering end of June data. This potential fusion could potentially gain regulatory approval, given the number of smaller players in the fixed market. Moreover, there won’t be any adverse regulatory issues on the mobile space front, considering Fastweb’s limited presence and Vodafone’s position as the third operator behind Wind Tre and TIM.

However, irritations may arise from other potential merger candidates. Reportedly, Iliad, who had an earlier offer for Vodafone Italia rejected, has been in intermittent talks regarding the merger of their Italian business. Iliad has amassed a 12.8% share by mid-year as a growing fourth player in the mobile market, representing an ideal partner for Vodafone. Nevertheless, an agreement with Vodafone may trigger the withdrawal of a facilities-based mobile competitor, a potential regulatory concern.

Additionally, negotiating a mutually satisfactory agreement between Iliad and Vodafone could prove more challenging than achieving regulatory permissions. Hence, Fastweb emerges as a likely contestant for a partnership with Vodafone in Italy, conditional on the potential agreement of terms between them.

Nevertheless, the possibility of a deal not materializing remains prominent. Vodafone urgently requires a strategy shift in Italy, given the challenging times for all of Italy’s significant telecom operators, including TIM who is in the process of selling its network assets.

Surprisingly, on the previous Friday, TIM formally introduced NetCo, a business unit compiled back in mid-2022. This unit encompasses the operator’s fixed network infrastructure and associated real estate, its wholesale business, as well as its stake in Telenergia. This unit would consist of over 20,000 staff, the majority from Wholesale and Network businesses, and around 900 from its Staff functions.

This new structure prepares the path for NetCo’s sale to KKR which, despite significant resistance, TIM hopes to conclude by the forthcoming summer. Despite the clarity provided by the formation of NetCo and ServCo, there is still a substantial path to traverse in terms of the network sale and the general transformation of the Italian telecoms landscape.

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