Iliad and Sky consider Italian mobile tie-up
CK Hutchison and VimpelCom are in talks with Iliad and Sky among other companies in a bid to address regulatory concerns over the €20bn merger between their local businesses.
The two groups are looking to address worries over competition after an effort by Hutchison to merge Three, its UK business, with rival operator O2 was blocked by the European Commission, according to people familiar with the matter. Regulators argued that the deal would lead to higher prices and to reduced choice for consumers.
A merger between 3 Italia and Wind would create the largest mobile-only operator in Italy with about a third of all sales. That would only put it narrowly ahead of former incumbent Telecom Italia.
Iliad and Sky have both spoken to Hutchison and VimpelCom about potentially creating a fourth operator, according to people with knowledge of the situation.
The companies declined to comment.
Fastweb, which is owned by Swisscom, is another potential partner, according to those close to the talks.
Brussels has said that every deal would be assessed on its own merits, but telecoms executives believe the regulator is reluctant to allow the reduction from four to three mobile operators in a single market.
In the UK, Hutchison had considered creating another mobile group to restore competition, but was unable to free enough spectrum for interested parties such as Virgin Media, TalkTalk and Iliad.
The Italian market is seen as a more likely country in which to create a fourth network, given that the combined business of Wind and 3 Italia could offer more spectrum to enable the creation of a rival group.
A move into Italy for Iliad would follow at least two failed attempts to break into new markets: in 2014 when it made a bid for a majority stake in T-Mobile US, the US telecoms business controlled by Deutsche Telekom, and more recently when it looked at the UK on the back of the proposed O2 acquisition.
But competing in Italy would also bring the low-cost operator into direct competition with Vivendi, the Paris-based media group which has spent €7bn in the past year to become Telecom Italia’s biggest shareholder.
Such a move would also raise questions about what Xavier Niel, Iliad’s billionaire founder, would do with his potential stake in Telecom Italia after he bought stock options late last year equivalent to more than 15 per cent of the company.
In a note last week, analyst Moody’s said that Hutchison and VimpelCom “may be willing to accept tougher remedies in Italy, because their standalone businesses face structural challenges”.
3 Italia is the only business among Hutchison’s European telecoms operations that makes a loss when taking capital expenditure from core earnings. “At the same time, Wind has a highly levered balance sheet and generates little free cash flow to reduce debt,” Moody’s added. “The combination should allow them to improve margins and generate stronger cash flows.”