Is a partial sale of Noovle the answer to TIM’s financial woes?

Last week saw TIM once again lower its guidance for the second time straight, as a difficult financial year continues for the Italian giant. Facing increasing domestic competition from rivals and the huge costs of large-scale deployments of 5G and fibre, the company is languishing under €22 billion in net debt and shares have slumped to a one year low.

 

Speaking about the high level of market competition in the company’s earnings call, CEO Luigi Gubitosi said that it was high time customers should pay more for quality connectivity.

 

“It is a crowded market, we have many competitors and some have done the easiest thing. They moved down prices,” he said. “This is quite irrational considering that we sell an inelastic service. This dynamic has been going on for some time, and we are now the cheapest telco market in Europe. We believe it’s time to change and that the way forward, service excellence and quality. We believe people realized how important their speed connectivity is and they are ready to pay a few euros more to have an excellent service.”

 

But despite these lacklustre results, anonymous sources suggest that TIM’s largest investor, Vivendi have said they are committed to supporting the company. "Vivendi will continue to accompany TIM to achieve its objectives in partnership with the Italian institutions. Vivendi may also see how the group can contribute more generally in the Italian economy as a long term partner," said an anonymous source.

 

Nonetheless, other sources close to the matter suggest that Vivendi had written to TIM Chairman Salvatore Rossie to convene an extraordinary board meeting to discuss a potential reorganisation. 

 

In an analyst call that followed this meeting, Gubitosi said that the company will aim to sell a minority stake in its computing unit Noovle, with the sale targeted for the second half of 2022.

 

Noovle represents TIM’s first major foray into the profitable cloud enterprise market. The unit is one of Google Cloud’s main partners in Italy and was purchased to help TIM develop its own public, private and hybrid cloud services. In October, TIM announced that it would be working alongside Noovle and Oracle to develop multicloud services aimed at the enterprise and public sectors.

 

Clearly, Noovle has enormous potential as a cash builder for the beleaguered telco, hence a partial sale could generate a significant sum. 

 

But it is not all bad news for TIM on the investment front. 

 

Interestingly, private equity firm KKR apparently also remains confident in TIM, with rumours suggesting that the company is looking to invest further in TIM’s fixed line network. Such an investment would build on a major deal last year, in which KKR paid €1.8 billion for a 37.5% stake in TIM’s last-mile network, FiberCop. 

 

According to an anonymous source, part of the motivation for a potential investment would be to own a significant stake in the proposed Italian single network, which would see TIM’s fixed line assets merged with those of rival Open Fiber. The plan has been shelved and revived numerous times over the last year, but its future is now beginning to look more optimistic, particularly given TIM’s financial pressures.

 

It should be noted, however, that despite its economic hardships, it is worth noting that TIM is still very much engaged with the cutting edge of telco technology, particularly when it comes to the growing Open RAN market. In recent months the company has announced that it has Open RAN equipment deployed in Faenza, Matera, and Turin, with more locations set to follow.