Swisscom set to snap up Vodafone Italy for €8bn

• Vodafone has been looking to exit Italy for some time
• It has previously rejected an offer from Iliad to merge their respective operations in the country
• But now Vodafone has struck an initial deal to sell its Italian business to Swisscom for €8bn

Only days after the CEOs of Europe’s top-four telcos – Deutsche Telekom, Orange, Telefónica and Vodafone – took to the #MWC24 keynote stage to plead for greater leeway from regulators on in-market M&A (and many other things besides), Vodafone has announced it is in exclusive talks to sell its operations in Italy to Swisscom for €8bn in cash. 

Should the negotiations lead to a firm agreement, and the signs right now are that they will, then this might be the next test to see if Europe’s regulators are cutting the telcos any slack when it comes to in-country mergers. That’s because Swisscom plans to merge Vodafone Italy with Fastweb, the Italian network operator that is part of the Swiss telco’s portfolio. 

The news comes only weeks after Vodafone rejected an offer from Iliad to merge their respective operations in Italy: That deal would have given Vodafone €6.6bn and a 50% stake in the merged operation, but the deal didn’t meet its needs. The Swisscom deal gives it €8bn in cash and no further stake in the Italian market. 

“Vodafone has engaged extensively with several parties to explore market consolidation in Italy and believes this potential transaction delivers the best combination of value creation, upfront cash proceeds and transaction certainty for Vodafone shareholders,” noted Vodafone in a statement released on Wednesday morning to the London Stock Exchange.

Swisscom noted in this statement: “Fastweb has been growing continuously in terms of customers, revenue and adjusted EBITDA for 10 years and has established itself as a leading player in Europe’s fourth-largest broadband market. The planned merger of Vodafone Italia and Fastweb would bring together complementary high-quality mobile and fixed infrastructures, competencies, and capabilities to create a leading converged challenger. The increased scale, more efficient cost structure and significant synergy potential would enable the combined entity to unlock value for all stakeholders. The transaction would be a key step to allow Swisscom to fulfil its objective to achieve long-term value creation in Italy and would be fully compliant with the Federal Councils’ strategic objectives for Swisscom.”

Vodafone Italia has been shrinking in recent years, in large part because of the intense competition from Iliad. It has about 17.2 million mobile customers, giving it a market share of about 24%, and 2.93 million fixed broadband customers. In the six months to the end of October 2023, Vodafone Italia generated revenues of €2.32bn, down by 2.4% from the same period a year earlier, while adjusted earnings before taxes and other costs came in at €645m, down by 15%. About two-thirds of its service revenues come from mobile services and a third from fixed-line services (including broadband). In terms of customer type, about two-thirds of its service revenues come from consumer customers and a third from enterprise customers.

Its next-generation network broadband services are now available to 23.3 million households, including 9.1 million through its own network and its partnership with wholesale broadband access network operator Open Fiber. Its fixed wireless access (FWA) network now reaches 4.3 million Italian households via its 5G network and a further 1.3 million households via 4G.

Fastweb, meanwhile, grew its total revenues by 6.1% in 2023 to €2.63bn, while its adjusted earnings before taxes and other costs were up by 2.1% to €798m. It ended 2023 with 3.25 million fixed broadband connections (of which 2.6 million were direct customer connections and 650,000 wholesale connections), up by 3.4%, while its mobile connections grew by almost 14% to 3.5 million. 

Combined, the Vodafone Italy and Fastweb businesses would generate annual sales of more than €7bn, with adjusted earnings of more than €2bn, and have almost 21 million mobile customers and more than 6 million fixed broadband customers (based on the most recent available data).

Vodafone’s shareholders don’t appear to be thrilled with the deal, though, as the operator’s share price hardly budged from the previous day and was trading at 68.3 pence on the London Stock Exchange by early afternoon UK time. 

The operator is currently in the process of selling its operations in Spain to Zegona for €5bn – that deal is on the verge of closing – and trying to merge its UK operations with that of Three, though that consolidation effort is currently under the scrutiny of the UK’s Competition and Markets Authority (CMA) and being reviewed under the UK’s National Security and Investment Act.       

- Ray Le Maistre, Editorial Director, TelecomTV