Credit impact of Telecom Italia spinoff depends on regulation: Fitch

The credit impact on Telecom Italia of spinning off its fixed-line network depends on the details of the agreement the Italian incumbent strikes with the country’s regulatory authorities, according to Fitch Ratings.

In a statement published this week, the ratings agency says there would be a strategic advantage in maintaining control of the network, especially as there is no infrastructure-based competition from cable companies in Italy.

The credit impact on Telecom Italia of spinning off its fixed-line network depends on the details of the agreement the Italian incumbent strikes with the country’s regulatory authorities, according to Fitch Ratings.

In a statement published this week, the ratings agency says there would be a strategic advantage in maintaining control of the network, especially as there is no infrastructure-based competition from cable companies in Italy.

While Telecom Italia (Milan, Italy) could continue to access cash at the fixed-line business if it sold only a minority stake, the potential proceeds could be modest in comparison with the operator’s net debt of €28.8 billion ($37.5 billion) at the end of March 2013, notes Fitch.

A worsening of revenue and earnings performance in 2013 would likely result in a downgrade for Telecom Italia, adds the ratings agency.

Last week, the Telecom Italia’s board of directors approved the network spin-off plan and the operator remains in discussions about selling a minority stake in the fixed-line business to bank Cassa Depositi e Prestiti.

A spin-off could improve the transparency of Telecom Italia’s pricing and wholesale arrangements, allowing regulatory authorities to gauge whether the operator is offering the same terms and conditions to rivals as to its own retail outfit.

A similar form of separation was carried out several years ago by UK telecoms incumbent BT and is widely seen to have bolstered competition in the country’s broadband market.

Meanwhile, Telecom Italia is also planning to invest €10 billion in the rollout of a fiber-optic network over the next ten years, according to sources cited in a report from Bloomberg.

Funding for the fiber-optic deployment would come from cash generated by the separated fixed-line business and contributions made by investors, according to the story.

Telecom Italia is also considering a possible merger of its mobile-phone unit with 3 Italia, a smaller rival owned by Hutchison Whampoa (Hong Kong), although the tie-up could hit regulatory and shareholder opposition.