Telecom Italia is looking for an upgrade with a multi-billion dollar spin-off

Telecom Italia SpA aims to accelerate the turnaround plan with an asset allocation plan that would cause the former telephone monopolist to relinquish control of its most valuable part, the network.

The company's board of directors on Wednesday gave a mandate to Chief Executive Officer Pietro Labriola to cede control of its network and reduce the company's gross debt by more than 30 billion euros ($31 billion), breaking up the phone operator into several separate divisions and seeking to attract new partners. 

Telecom Italia said its spin-off fixed assets division, called NetCo, will generate organic earnings before interest, taxes, depreciation and amortization after rental costs of around 2.2 billion euros as of 2025, up from 2 billion euros reported last year, according to the phone operator's capital markets presentation slides. 

NetCo's Ebitda is expected to grow slightly to around 2.7 billion euros by 2030, while the division's sales will remain stable at around 5.4 billion euros. Up to 11 billion euros of the telephone operator's debt will be transferred to the NetCo division.

"NetCo can be the first example in Europe of a fiber optic network infrastructure and technology center available to the entire market and with a wide presence throughout the country," Telecom Italia said in a statement on Thursday. The separation will take up to 18 months, the company said.

Labriola said splitting the network is a top priority and his plan calls for ceding a controlling stake to a group of investors led by state lender Cassa Depositi e Prestiti SpA, KKR & CO. and Macquarie Group Ltd., and then merging it with smaller competitor Open Fiber SpA.

The plan also provides for the separation of all commercial services of the company into a division called ServiceCO, which will include a consumer branch and enterprise, as well as the Brazilian division of the company. 

While sales and profits at the consumer branch are expected to remain stable through 2026, the division's leading customer unit could nearly double ebitda to at least €1.7 billion as of 2030 from €900 million last year. Sales of the enterprises will reach about 5 billion euros from 3 billion euros last year.

The company also said about 15,000 employees, or nearly a third of all staff, will be transferred to NetCo as of 2030.

However, the assessment of the network remains a stumbling block. While the carrier's advisers and leading investors have been discussing it over the past few weeks, the valuation figures continue to vary widely, from just 20 billion euros to about 30 billion euros, people familiar with the matter said.