Tiscali's network to be 'streamlined' after TIM deal

TIM and Tiscali have signed contracts governing their agreement to jointly invest in the FiberCorp network project.

The contracts formalise the terms of the cooperation deal the pair announced in August. In a nutshell, Tiscali will invest in the high-speed FiberCorp network – which is set to become Italy’s single broadband network – and will connect its customers using that network. There is talk of Tiscali taking an ownership stake in the infrastructure, but nothing has come of that as yet.

In a statement published this weekend, TIM and Tiscali noted that they have also inked a series of operational and commercial agreements to govern the various phases of the project, “the first of which concerns streamlining the Tiscali network.”

That may sound a bit ominous for the ISP, but it should come as no surprise, given that Tiscali itself has talked up the benefits of participating in an alternative infrastructure rollout rather than pushing on with its own.

In the wake of a September board meeting, Tiscali released a document highlighting the advantages of its tie-up with TIM, chief among which were “strong reduction in connectivity and traffic management costs,” and “almost total cancellation of network investments.” It also noted that it would be able to connect new users and migrate those currently connected by copper to fibre at a significantly lower cost than without the deal, and added that the agreement would increase its potential customer base for fibre connections by 50%.

Further, Tiscali said the agreement would drive a small increase in EBITDA and improve cash flow generation by the low tens of millions of euros.

Those types of details were lacking from the contracts announcement, but it’s safe to assume that Tiscali still sees similar benefits from the transaction.

Inking the various deals means that Tiscali will be able to add new customers to the FiberCorp network, effective immediately.

Tiscali needs the boost. Its share of Italy’s broadband market stood at just 2.4% at the end of June, according to the latest data from regulator Agcom, down 0.2 pp over the course of 12 months. That said, when splitting out fibre-to-the-home (FTTH) figures, Tiscali’s performance is somewhat stronger. It claimed 4.8% of FTTH connections in June, up 1.2 percentage points year-on-year. Nonetheless, it remains a small player in a scale game.

Ploughing money into FiberCorp rather than pursuing a standalone strategy is one way to address that issue.

Whether Tiscali actually ends up as a shareholder in the entity is anyone’s guess. As it stands, TIM is working on a plan to sell a 37.5% stake in the network operator to investment group KKR, which would leave it with a 58% stake in the outfit. Fastweb, which has agreed to contributes its minority stake in Flash Fiber – an FTTH joint venture with TIM – to FiberCorp would hold 4.5%.

The whole plan is still awaiting various regulatory approvals though, in no small part because it is intrinsically linked to the creation of a single, high-speed broadband network, an initiative that was all-but forced on the country’s telcos by the government. The project requires the participation of Open Fiber, a rival wholesale fibre network rolled out by state-owned players Cassa Depositi e Prestiti (CDP) and Enel. The project is essentially being held up by Enel, which is currently sitting on a buyout offer from Australia’s Macquarie.

Earlier this monthReuters quoted TIM chief executive Luigi Gubitosi as saying that his company is ready to progress with the network merger – which it will control, incidentally – once Open Fiber’s shareholders are ready.

Judging by the speed of progress so far, this readiness could be a long time coming.