Italy's digital future seen at stake in battle for Metroweb

Reuters News
Posted: Dec 18, 2014 11:27 AM

By Danilo Masoni and Stefano Rebaudo

MILAN (Reuters) - A small company renting out optical fiber cables in Milan has become the subject of a fierce takeover battle between Telecom Italia and global mobile giant Vodafone, with a national high-speed fiber network seen as the ultimate prize.

Both companies have set their sights on buying a controlling stake in Metroweb that infrastructure fund F2i is selling.

But what should have been a straightforward deal has turned into a full-blown political and regulatory row as deciding on the buyer of the stake could determine who calls the shots in a multi-billion-euro plan to build the nationwide fiber network.

When Telecom Italia said last month that it was seeking to buy Metroweb lawmakers from across the political spectrum voiced concerns for competition. Vodafone then waded in, protesting to Italy's competition watchdog AGCM.

Metroweb generates sales of just 60 million euros ($74 million) a year but what is at stake goes beyond mere numbers as players jostle for market position in a country that is a European laggard for fast internet access.

Prime Minister Matteo Renzi has pledged 6 billion euros in public funds to cover half the costs of an ambitious plan to bring super-fast internet services to 85 percent of Italy's consumers in the next six years.

Italy is split by two mountain chains and servicing households with fiber optic cable is a tough and costly task that has been put off for years.

But the pressing need to modernise the country and shake off its economic malaise has changed the landscape. And Metroweb, a partly state-owned company created 17 years ago, is now seen as the right corporate vehicle for realizing Renzi's project.

"Metroweb is the ideal candidate to roll out a new network of fiber optic cables across Italy," its chief executive, Alberto Trondoli, said.

"We can easily replicate what we've already done in Milan on a national scale, giving all players access on equal terms".

For Renzi, making Italy more digital has turned into a top priority and the 39-year-old premier is now seeking to pool public funds with money from telecoms operators.

Metroweb is part-owned by cash-rich state lender Cassa Depositi e Prestiti but CDP's last 4.5 billion-euro nationwide broadband plan never really got off the ground due to lukewarm political backing.

In recent months the government has changed gear, putting contracts out to tender to roll out fiber by tapping into long-neglected European funds and last month it published a game-changing plan for Italy's digital development.

"The market is waking up to the fact that the government is taking all this very seriously," said Stefano Pileri, the former head of technology at Telecom Italia and now CEO of telecoms equipment supplier Italtel.

While Rome's plan spells out which technology should be used for Italy's digital development, plumping for architecture already adopted by Metroweb, it has also indicated that the rewards for new investments in fiber may be generous.

This would mark a departure for telecoms regulation, which currently champions competition and low consumer prices to the detriment of investments, with the change in attitude making Metroweb all the more attractive.

As a result analysts now value the firm at around 400 million euros.

(Editing by Greg Mahlich)