Telecom Italia, ha senso la separazione della rete? L’opinione di Banca Akros

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Network Separation has surfaced a few times as a possible option for Telecom Italia (TI) in the past decade. The official spin-off project which had been initiated at the end of 2012 was then officially terminated in November 2013, in the context of negative rulings from Agcom and the resignation of TI’s former Chairman & CEO Franco Bernabè. Under the tenure of the new CEO Marco Patuano, TI accelerated its network investments, while infrastructural competition has definitely increased. New developments in the UK suggest that network separation options might still be possible, although we do not think that BT will pursue them. TI has clearly indicated that no separation options will be considered. However we think that a fresh analysis of the issue based on recent developments, as well as an updated look at the evolution of the existing spin-off examples, could be useful.

– In particular, while European consolidation has been occurring so far mainly “in-country”, we note that future evolutions of foreign operators’ shareholdings in incumbents could originate new discussions on the merit of network separation. The Italian government is laying-out a EUR 7bn national broadband plan; Metroweb is discussing with TI rivals Vodafone and Wind for a national fibre roll-out. The changes at the top of CDP also suggest a potential strategic rethinking. These talks could produce different outcomes, potentially involving TI and its network plans. We note however that earlier this year TI and Metroweb have not agreed on a possible combination, and that TI is moving on swiftly with its own relevant fibre plan.

– On the other hand, the most recent rulings on copper ULL and wholesale fibre access offer visibility and broadly stable revenue trajectory in 2014/2017. We believe that there is considerable appetite in the market for infrastructure assets, amid the ongoing hunt for yields. The declining cost of capital provides an interesting upside to the original estimated value of TI’s network.

– As said above, the network separation topic has now resurfaced in the UK. The ongoing market review by Ofcom has triggered new requests by Sky and Talk Talk for a total spin-off of Openreach. This outcome appears rather unlikely, though.

– We argue that several lessons can be taken from the experiences in Australia New Zealand and Singapore, in terms of political and regulatory risk, issues in actual roll-out, timing and costs, economic returns and technological solutions. The Network Company is clearly exposed to regulatory risk, whereas the ServiceCo can be in principle affected by increased competition at the retail level in presence of a level playing field for broadband. The actual economic results in Australia and NZ and even more the stock market performances are definitely more supportive.

– Whether network separation will re-emerge or not in TI’s agenda, broadband roll-out and funding and the Metroweb dossier will be key strategic topics in the next few months. Rumours or newsflow or renewed interest by CDP could positively affect the stock price, whereas the announcement of ambitious alternative plan by Metroweb would have negative implications, in our view.

– All this considered, we confirm our positive recommendation on the stock (target price Eur 1,30), based on undemanding relative valuation, improving underlying perspectives in both fixed and mobile (also in presence of supporting local consolidation) and persisting optionality (Vivendi, ord/saving conversion). We believe the negative impact of Brazil has been already discounted and that the asset would be hardly disposed at this level, on the contrary some acquisition opportunity may emerge.

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