Telecom Italia teeters on edge after spin-off plan put on hold

Telecom Italia is back at square one after various plans to revive the indebted company unravelled in recent weeks, causing the operator's share price to fall to a record low, according to Reuters.

Indeed, the operator may now be regretting its recent decision to end talks with Hutchison Whampoa over a merger of their respective mobile assets in order to focus on the spin off of its fixed-line network into a separate company. The spin-off plan has now been put on hold after Telecom Italia reacted angrily to plans by regulator Agcom to reduce the fees it can charge rivals for accessing its network by 6.5 per cent, saying this would impact its revenue by €110 million per year.

"While reiterating the importance of the plan for both Telecom Italia and the development of the country's telecommunication system, the board acknowledged that the uncertainties introduced by recent decisions taken by Agcom might affect its feasibility," the operator said in a statement following a board meeting to discuss the Agcom decision.  "It therefore resolved that, before proceeding with further stages of implementation of this plan, the consistency of its content and the regulatory path with the underlying assumptions of the plan must be verified."

Following a parliamentary hearing on Tuesday, Chairman Franco Bernabe told Reuters that the operator still believed in the spin-off plan, but first wanted to ensure that the domestic regulatory framework is in line with guidelines set by the European Commission.

Following the collapse of talks with Hutchison Whampoa, if Telecom Italia does not get an injection of funds from the sale of a stake in a new company worth around €14 billion ($18.4 billion), it's far from clear how it will reduce its net debt of almost €30 billion. In the meantime, investors are expected to turn their focus back on the operator's poor underlying business and high debt, according to the Financial Times.

"Telecom Italia's heavy debt load, already teetering on the edge of a downgrade to junk, may be pushed over the edge" after its second-quarter earnings report, Robin Bienenstock, an analyst at Sanford C. Bernstein in London, wrote in a report called, "Telecom Italia: How Much Worse Can It Get? Worse," according to Bloomberg. The report was published before it was announced that the spin-off plan would be put on hold. The company reports earnings Aug. 1.

Telecom Italia's rivals have expressed surprise that the operator is making the spin-off plan dependent on the regulatory regime. According to various media reports, Vodafone Italy, Wind and Fastweb wondered if the spin-off plan "wasn't really just a way to put improper pressure on the regulator."

For more:
- see this Financial Times article (sub. req.)
- see this Bloomberg article
- see this Dow Jones Newswires article
- see this Reuters article
- see this separate Reuters article

Related Articles:
Telecom Italia's spin-off plan in jeopardy over cut in access fees
Telecom Italia gets regulatory blessing for network spin-off plan
Telecom Italia quits talks with Hutchison for mobile merger
Telecom Italia approves fixed-line network spin-off plan
Telecom Italia values fixed network at €13B-€15B; delays spin-off decision
Telecom Italia gives itself 30 days to decide on Hutchison tie-up

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