Telecom Italia SpA is discussing a deal to lease network capacity from broadband rival Open Fiber SpA that would shift the competitive landscape in Italian telecoms, according to people with knowledge of the matter.
Executives from Telecom Italia and wholesale carrier Open Fiber met in recent weeks to review a plan for the former monopoly to rent active connections and unused lines from the state-backed challenger, especially in rural areas, said the people, who asked not to be identified as the project isn’t public.
Telecom Italia shares were temporarily halted in Milan trading after rising as much as 4.3 percent. The stock advanced 2.2 percent to 0.55 euros at 2:34 p.m., giving the company a market value of 11.1 billion euros ($12.7 billion).
The commercial partnership could be a first step towards a broader alliance and, ultimately, a tie-up of the two companies, the people said. Spokesmen for Telecom Italia and Open Fiber declined to comment.
Open Fiber, a joint venture between state utility Enel SpA and state lender Cassa Depositi e Prestiti, has been rolling out its high-speed network to premises across the country in a challenge to Telecom Italia’s core business. The lender is also a shareholder of Telecom Italia.
A deal could help Telecom Italia win favor with the government, which is pushing for better rural internet coverage. Open Fiber is stepping up efforts to bring fiber connections to about 20 million premises by 2022 and signed a seven-year financing agreement for up to 3.5 billion euros with a pool of banks in August.
The expansion was backed by a government keen to stimulate the economy by accelerating broadband internet speeds that lag behind European peers. Critics have questioned the commercial rationale for having costly, parallel infrastructure rather than a single fiber network in which wholesale capacity is rented to rivals to stimulate competition.
Telecom Italia already tried to buy Open Fiber’s main asset, urban fiber operator Metroweb, in 2016. Telecom Italia Chief Executive Officer Amos Genish in June gave his support for another attempt to combine the two networks.
Telecom Italia is “more than open minded in discussing a combination of fiber assets with Open Fiber,” Genish said at the time. “We think that a single country fiber-to-the-home player could play a better role.”
Enel Chief Executive Officer Francesco Starace has opposed such a venture until now, while the government in Rome has largely stayed clear of the debate.
Genish is under pressure to stop customers switching off their fixed-line subscriptions, which are the main source of profits for Telecom Italia. The company, which reports third-quarter results after the close of share trading in Milan, is servicing hefty debt and spending heavily on new mobile frequencies. The CEO is also contending with warring leading shareholders Vivendi SA and Elliott Management Corp. – Bloomberg