TIM's new data centres and cloud unit to launch in Q1

TIM’s board of directors has approved the spin-off of the Italian telco’s data centres business into a new company that will start operations in 2021 and is on the look out for external investors.

The move has been in the pipeline for the past year or so, during which time TIM has endeavoured to build up its presence in the cloud services market. While a number of big name European telecoms players have pulled back from the market, selling off data centre assets amid stiff competition from the hyperscalers, TIM seems keen to secure a seat at the table.

To that end, it is working closely with Google Cloud. It brokered a partnership deal with Google Cloud almost exactly a year ago and in April appointed Carlo D’Asaro Biondo to head up its TIM Cloud Project and develop the Google relationship; Biondo joined the operator after more than a decade at Google, where he had spent the last four years serving as EMEA President of Partnerships and Strategic Relationships. The following month TIM acquired Noovle, an Italian ICT and systems integration consultancy specialising in cloud, and a major Google cloud partner. TIM highlighted in particular its efforts in the provision of virtual IT infrastructures, remote working, customer experience and artificial intelligence (AI).

“With this acquisition, TIM’s path with Google will gather significant speed through the future creation of its own newco dedicated to cloud and edge computing services,” TIM said at the time.

This week, alongside the publication of TIM’s third-quarter results, the telco announced that newco has been given the green light by the board and will start operating in Q1 next year, subject to various authorisations.

It predicts that pro forma turnover at the unit will come in at around €500 million for full-year 2020 and forecasts growth of 20%-plus per year going forward.

The telco added that thanks to its partnership with Google Cloud, it won some major business services clients in the first nine months of the year. Indeed, in May Intesa Sanpaolo signed an MoU with TIM and Google geared towards the banking group procuring cloud services from Google, using TIM’s domestic data centres, and culminating in the creation of two Google Cloud Regions in Milan and Turin.

The cloud segment provided a high point in a fairly dismal set of Q3 numbers, although the weakness was expected in no small part due to the Covid-19 pandemic and the telco confirmed its full-year guidance.

TIM noted that in its Business division, which includes Noovle, revenue associated with what it describes as innovative services, including ICT, cloud and IT solutions, continued to grow, rising by 18% year-on-year in Q3 on the back of the Google tie-up and “the successful outcome of important negotiations with major customers.” However, it did not fully split out numbers for this sub-segment.

The domestic Business segment as a whole saw revenues slide by 13% in the first nine months to €3.4 billion, but the decline for Q3 alone was smaller at 10.5%. Reported revenue declines at the Consumer unit were slightly smaller but broadly similar. Overall, TIM’s Italian business saw revenues drop by 7% in Q3 and by 10% to €10.5 billion in the first nine months. EBITDA was down by over 10.4% to €4.1 billion in the January-September period, which equates to a virtually static EBITDA margin at just over 43%.

Returning to newco, the spin-off of the unit is just the first step in TIM’s data centre strategy. The operator has made it clear it will look for one or more investor partners for the business, ahead of a possible listing, although it will retain control of the entity.

It’s surely a tempting prospect for the investment community in the current climate. We can probably expect an announcement sooner rather than later.