Vodafone eyes Fastweb deal in Italy as TIM presents NetCo

Rumour and speculation in the Italian telecoms market has become the norm in recent years, thanks to TIM’s ongoing endeavours to reshape its business, another planned network sale from Wind Tre, and endless talk of Vodafone’s tricky position in the sector. While the composition of NetCo – more on that below – provides greater certainty to the TIM situation, Vodafone Italia is once again making headlines on the back of uncertainty.

Fixed and broadband operator Fastweb is one of a number of companies to have been exploring a possible tie-up with Vodafone Italia, Bloomberg reported, citing the usual unnamed sources with knowledge of the situation. The newswire implied that Swisscom-owned Fastweb is looking to acquire Vodafone’s local unit, but then went on to talk more generally about a “potential combination,” suggesting that some sort of merger could also be an option.

Looking at the shape of the market, any kind of M&A deal between Fastweb and Vodafone would make a lot of sense.

Regulator AGCOM’s latest figures, show that TIM is by far the leader in Italy’s residential fixed broadband market with a share of almost 39%, but that there is little to pick between second, third and fourth placed players Vodafone, Wind Tre and Fastweb, in that order. A merged – in whatever form that might take – Vodafone/Fastweb would boost its market share to over 30%, based on end-June data.

It’s not a given, but the companies would have a good chance of getting the authorities on side, given the number of alternative smaller players in the fixed market. Meanwhile, with Fastweb having little presence in the mobile space, where Vodafone is the country’s third operator behind Wind Tre and TIM, there would be no major regulatory hurdle there.

There would be complaints though, mainly from other players also interested in a merger with Vodafone.

Bloomberg notes that there are others, but names only Iliad, which famously had an offer for Vodafone Italia rebuked almost two years ago. The newswire claims Vodafone and Iliad have held “on-and-off discussions in recent months” with regard to the merger of their Italian businesses, but naturally we don’t know any more than that.

Iliad is a minor, although ambitious, player in Italy’s fixed broadband market, having launched its fibre-to-the-home (FTTH) offer at the start of last year and is a growing but distant fourth player in the mobile market, racking up a 12.8% share by mid-year. On paper, it makes a great partner for Vodafone, but any deal would mean the loss of a facilities-based mobile competitor, which makes for a tough regulatory sell. We’re still waiting for the EU to make a call on the Orange/MasMovil deal in Spain, which should clarify Brussels’ position on that front.

Further, Iliad and Vodafone would have to broker a deal that both companies were happy with, and that might well be an even tougher ask than obtaining regulatory clearance.

That being the case, Fastweb seems a credible choice of partner for Vodafone in Italy, again, subject to the companies’ abilities to agree terms.

The usual caveats apply – that no deal may materialise – but Vodafone clearly needs to do something in Italy.

It has been a difficult few years for all of the market’s major operators, not least TIM, which has been trying to flog its network assets for what seems like an eternity.

On Friday the telco formally presented NetCo, the business unit it first shaped back in mid-2022. The business unit includes the operator’s fixed network infrastructure and related real estate, the wholesale business, and its stake in Telenergia. NetCo will have more than 20,000 staff, the majority of which already work in the Wholesale and Network businesses of TIM, plus around 900 from its Staff functions.

That leaves around 16,300 full-time equivalent staff in TIM’s remaining service business, which equates to 17,500 people.

The new structure being in place will help pave the way for the sale of NetCo to KKR, a deal that – despite considerable opposition – TIM still expects to close next summer.

That clarity around what NetCo and ServCo will look like is a step forward for TIM, but there is still a long way to go in the networks sale, and in the reshaping of the Italian telecoms landscape in general.