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Telecom Italia (TIM): The Rise and Fall of Italy's Telecom Giant
I. Introduction: When Giants Stumble
Picture the boardroom of Mediobanca, Milan's legendary investment bank, on a spring evening in May 1999. Roberto Colaninno, a scrappy auto-parts executive turned telecom raider, sends a champagne cork flying through an open window. His audacious gambit has succeeded: Olivetti—a typewriter maker turned tech company one-fifth the size of its target—has just swallowed Italy's telecom monopoly whole. The €65 billion deal sends shockwaves through European finance, signaling that in the new world of the euro, no corporate fortress is impregnable.
TIM S.p.A. (formerly Telecom Italia S.p.A.) is an Italian telecommunications company with headquarters in Rome, Milan, and Naples, which provides fixed, public and mobile telephony, and DSL data services. It is the largest Italian telecommunications services provider in revenues and subscribers. It has also a subsidiary in Brazil, known as TIM Brasil, with 72.6 million customers. The brand covers over 114 million customers worldwide.
But behind these statistics lies one of capitalism's most instructive cautionary tales. How did Europe's largest privatization become a textbook case of value destruction through financial engineering? How did a debt-free national champion in 1997 become a €26 billion debtor by 2023, eventually forced to sell its crown jewel—the fixed-line network that generations of Italian taxpayers had built—to American private equity?
This story "discusses the privatization of Telecom Italia over ten years, from divestiture to three subsequent changes of ownership control. Why has the governance of one of the most promising of the former nationalized industries been so unstable?" The turn of events suggests that the evolution from public to private ownership in Italy has taken on the characteristics of a search for equilibrium in a complex game, centred around the control of rents. In crucial moments (privatization, takeovers, reorganization plans), the political system was able to choose between removing itself from the telecommunications sector, or declaring a public interest in its control. A middle path was chosen, in which the government negotiates with private interests but without a clear industrial policy. Financial operators, for their part, participate in the game in a speculative fashion, with limited means, unable to project a convincing industrial plan.
This is a story that spans from Mussolini's 1925 telephone monopoly to KKR's 2024 acquisition of Italy's fixed-line network. It features hostile takeovers financed by the new euro, the world's first prepaid mobile card, battles between French media empires and American activist hedge funds, and ultimately, the dissolution of an integrated telecom operator. For investors, the lessons couldn't be more relevant: what happens when financial engineering trumps industrial strategy, when debt becomes the master rather than the servant, and when "strategic" assets attract political interference without clear policy direction.
II. Italy's Telecom Origins: From Fragmentation to Monopoly (1880s–1994)
The Nineteenth-Century Scramble
The telephone arrived in Italy the way most technologies did in the fractured peninsula: chaotically. As telephones were introduced in Italy during the last two decades of the 19th century, private companies and entrepreneurs mainly financed the development of local networks. In 1881, 37 telephone franchises had been granted to private businesses; ten years later, more than 11,000 subscribers were served by 56 telephone franchises. After initial interest, investment and development waned, and at the turn of the century, Italy had one of the lowest telephone densities in Europe—one telephone per 2,243 inhabitants, compared with one per 690 people in France, one per 214 in England, and one per 70 in Sweden.
The comparison is striking: Italy lagged not just Britain and France, but even Sweden—a country with half its population scattered across frozen wilderness. The reason was familiar to students of Italian economic history: fragmentation, underinvestment, and the absence of a coordinated national strategy. Local franchisees operated isolated networks with no incentive to interconnect. The state collected taxes but provided no capital.
Mussolini's Consolidation
The fascist regime changed everything—at least structurally. In 1925, the Italian phone network was reorganised by the Benito Mussolini cabinet and the company STIPEL was established in the same year. This was part of Mussolini's broader effort to consolidate Italian industry under state direction, creating national champions in steel, chemicals, and utilities.
In 1925, the phone network was reorganised by the Benito Mussolini cabinet and the company Stipel was established in the same year. The original core of Telecom Italia included 4 companies: TIMO, Teti, TELVE and SET. Each of them operated in a specific geographical area. In 1964, these companies merged in one single group under the name of SIP.
The architecture was typical of Italian corporatism: state-backed holding companies controlling operational subsidiaries, all ultimately answerable to the Ministry of Finance. STET (Società Finanziaria Telefonica) emerged as the financial holding company, itself controlled by IRI—the massive state industrial conglomerate that came to dominate Italian manufacturing, banking, and utilities through the post-war decades.
The SIP Monopoly (1964-1994)
In 1964, SocietĂ Idroelettrica Piemontese (SIP), a former energy company founded in 1918, ceased producing energy and acquired all of the Italian telephone companies, becoming SocietĂ Italiana per l'Esercizio Telefonico. It was run by the Italian Ministry of Finance. SIP was a state monopoly from 1964 to 1996 and Italian people had to pay the "Canone Telecom" (a line rental charge) in order to have a phone at home.
The Canone Telecom became as much a feature of Italian life as the television license fee was in Britain. Every household paid it, whether they made calls or not—a reliable revenue stream for the state-owned monopolist. SIP wasn't particularly efficient or innovative, but it did achieve something its fragmented predecessors couldn't: universal service. By the 1980s, most Italian households had telephone access, even in the underdeveloped Mezzogiorno.
But monopolies breed complacency. When mobile technology arrived in the early 1990s, the first appearance in the Italian mobile telephony market dates back to 1990 with the launch of the TACS network by the Telecom Italia Mobile Radio Services division. Italy's mobile network was technically adequate but commercially uninspired—still tethered to the assumptions of fixed-line monopoly.
The winds of liberalization were blowing across Europe. The European Commission was pushing for telecom privatization; the Maastricht Treaty's fiscal constraints demanded governments reduce debt—and asset sales were the quickest route. By 1994, the pressure was irresistible.
III. Birth of Telecom Italia & The Mobile Revolution (1994–1997)
The 1994 Consolidation
Telecom Italia was founded in 1994 by the merger of several state-owned telecommunications companies, the most prominent of which was SIP, the former state monopoly telephone operator in Italy. This wasn't privatization yet—merely rationalization. The Byzantine structure of overlapping state entities was collapsed into a single operating company, still government-owned, preparing for eventual public offering.
The reorganization brought together fixed-line, mobile, international services, and satellite operations under one corporate roof. For the first time, Italy had a telecom company that could compete with the likes of Deutsche Telekom, France Télécom, and BT—at least on paper.
The TIM Spinoff and Prepaid Innovation
The mobile division received special treatment. In July 1995, the company spun off its thriving mobile communications arm to form Telecom Italia Mobile (TIM). With limited competition, it held more than 90 percent of Italy's wireless subscriber market.
TIM's dominance was remarkable. But what made it genuinely innovative—and globally influential—was what happened next. In 1995, the mobile telephony division was spun off as Telecom Italia Mobile (TIM), while Telecom Italia, under managing director Francesco Chirichigno, would take care of fixed and public telephony and network infrastructure. On 7 October, after the experimentation period at the CSELT, TIM launched the first rechargeable prepaid card for Italy, the TIM Card, becoming the first telephone company in the world to introduce this charging system.
This is worth pausing on. Towards the end of 1996 TIM was the first world operator to launch a tariff plan based on a prepaid card on the GSM network, which in a short time generated rapid growth in mobile telephony. The prepaid model—now ubiquitous worldwide—was largely an Italian invention. Before TIM's innovation, mobile phones required credit checks, contracts, and monthly bills. The prepaid SIM card democratized mobile telephony, making it accessible to students, immigrants, the credit-impaired, and anyone wary of long-term commitments.
Building on this foundation, Italy saw its first prepaid solution in 1996 with the launch of the "TIM Card" by Telecom Italia Mobile (TIM), which introduced a rechargeable SIM-based model compatible with any GSM phone, emphasizing flexibility for users wary of long-term contracts. This innovation quickly gained traction by enabling instant activation and balance checks via the SIM.
The prepaid model spread rapidly—first across Europe, then to emerging markets where it transformed the economics of telecommunications. In countries like Kenya, Nigeria, and Brazil, prepaid airtime became a form of currency. TIM's invention arguably did more to advance global telecommunications access than any regulatory reform or infrastructure investment program.
In 1996, TIM introduced a new prepaid rechargeable phone card (GSM), and one year later launched short messaging service (SMS) capability. SMS—initially an afterthought, a way for engineers to communicate with each other—became another Italian-developed mass phenomenon, laying groundwork for the texting culture that would transform communication.
By 1997, Telecom Italia and TIM together represented one of Europe's most valuable telecommunications franchises: dominant market positions in fixed and mobile, genuine technical innovation, strong cash flows, and—crucially—virtually no debt. The stage was set for privatization.
IV. The Great Privatization: Europe's Biggest Sale (1997)
Setting the Stage
The pressure to privatize came from Brussels as much as Rome. Italy's public debt exceeded 120% of GDP—among the highest in Europe—and the Maastricht convergence criteria demanded fiscal discipline. Telecom Italia, with its predictable cash flows and strategic value, was the obvious candidate for "the mother of all privatizations."
As journalist Marco Palombi writes: "However, this disaster began thirty years ago when 'the mother of all privatizations' was deemed necessary for Italy to respect the parameters of the Maastricht Treaty. There was no industrial plan, just the requirement to raise cash. It is the first of many financial choices that destroyed an industrial giant."
The next step toward privatization came in 1997, when the company merged with STET (retaining the Telecom Italia name) and the Italian government sold nine percent of its stock to an investor group comprised of Italian insurers and banks.
The Record-Breaking IPO
What followed amounted to the biggest privatization move in modern Italian history. In October 1997, the government sold an additional 34 percent of its Telecom Italia stake for nearly $12 billion, trumpeting the privatization as the largest in Europe and the second largest in the world. Investors worldwide snapped up the shares.
The offering attracted enormous retail participation. The offering attracted 2.1 million applications to buy shares. These investors ultimately were allocated 1.45 billion shares against only 55 million to institutional investors. Moreover, many of these shareholders were not Italian; 37% of Telecom Italia voting shares were held by foreigners at the time of Olivetti's tender offer.
This ownership structure would prove fateful. The widely dispersed shareholder base—lacking any controlling blockholder except the Treasury's residual stake—made Telecom Italia vulnerable to hostile takeover in ways that incumbent management failed to appreciate.
In 1997, under the chairmanship of Guido Rossi, Telecom Italia was privatised and was transformed into a large multimedia group.
Management Chaos and the Golden Share
After privatization, the company faced daunting challenges—to address increased competition, an employee headcount bursting at the seams, and a failure to sustain strategic partnerships with AT&T and Cable & Wireless.
But the governance problems were more immediate. When Rossignolo showed union leaders worst-case profit projections to support an argument for labor concessions, the projections were leaked to the press and share prices plunged. In his attempt to allay investor fears, Rossignolo explained that the projections were only used to wring out labor concessions. The board demanded his resignation and for the second time in less than one year, Telecom Italia found itself without a leader.
The parade of executives was dizzying. Guido Rossi, the distinguished jurist who oversaw privatization, resigned within a month. His successor Rossignolo lasted barely longer. Into this vacuum stepped Franco Bernabè.
Franco Bernabe was appointed to the role of chairman. Bernabe had so successfully masterminded the turnaround of ENI, the Italian oil giant, that his story was a Harvard Business School case study. He began to work on an international plan and, in an effort to initiate a strategic partnership, approached Deutsche Telekom in early 1999. Despite the turmoil since its privatization in 1997, the company had a high cash flow and was virtually debt-free.
That last phrase—"virtually debt-free"—is crucial. At the moment of maximum opportunity, Telecom Italia had the balance sheet strength to pursue any strategic path: international expansion, technology investment, value-returning dividends. Instead, its corporate governance weakness made it prey.
V. The Olivetti Hostile Takeover: David vs. Goliath (1999)
Enter Roberto Colaninno
Roberto Colaninno (16 August 1943 – 18 August 2023) was an Italian businessman. He served as president of Piaggio from 2006 till his death. Born in Mantua into an Apulian family, Colaninno graduated in accounting, and in 1969 he started working at Fiaam, a company producing car filters, becoming its managing director and later its CEO. In 1981, he founded in his hometown SOGEFI, another auto components company, which was later acquired from CIR Group. In 1996, he became CEO of Olivetti, and during his tenure he sold Olivetti's subsidiaries Omnitel and Infostrada to Mannesmann for about 7 billion lire, and then took part in the 1999 Telecom Italia takeover.
Colaninno was an unlikely corporate raider. He came from the decidedly unglamorous auto-parts industry, far from the financial sophistication of Milan's investment banks. But he understood leverage, and he understood opportunity.
Already analysts were calling Olivetti's telecommunications ventures its most important assets, but the company continued to be saddled with its flagging PC operations. Under pressure from foreign investors clamoring for change, De Benedetti resigned as chairman in late August 1996 although he remained a powerful figure through his stake in the company of about 14.5 percent. Francesco Caio, who had led the successful launch of Omnitel, took over the helm but was ousted in mid-September amidst management chaos. A more permanent successor was soon found in Roberto Colaninno, a man with ties to De Benedetti—making investors suspicious about who was really in charge—who nonetheless, according to Euromoney, proclaimed, "I took this job on three conditions, that De Benedetti is considered a normal shareholder, with the same rights as any other; that my job is to relaunch this business as a profitable company and that I be given enough power to do all this."
Colaninno executed a textbook restructuring: exit the failing PC business, monetize the telecom assets, build a war chest. By early 1999, Olivetti had transformed from a money-losing hardware company into a pure-play telecom holding with significant cash.
The Audacious Bid
In February 1999, Olivetti made an unprecedented €53 billion ($58 billion) hostile takeover bid for Telecom Italia. In May, Olivetti's chief executive, Roberto Colaninno, sent a champagne cork flying out of a window at Mediobanca, the Milan investment bank.
In February 1999, Olivetti announced its daring takeover bid. As a hostile bid initiated by a company one-fifth the size of Italy's largest telecom provider, it seemed preposterous. A battle for investor support and shareholder allegiance ensued, becoming highly public and contentious.
The Financial Times captured the moment's significance: "Commentators rushed to proclaim a new era in Italian business practice, one with a fresh emphasis on shareholder value and the rights of minority shareholders. For example, the Financial Times proclaimed 'By launching a Lire102,000 billion bid for a privatized group on Saturday, Roberto Colaninno, chief executive of Olivetti, has provoked what is tantamount to an earthquake in the traditionally closed and incestuous world of Italian capitalism dominated by a few big influential players and their political sponsors.'"
Bernabè's Failed Defense
Above all, this was a battle lost by Franco Bernabè, the conscientious industrialist. His bankers wanted all-out war against Olivetti. Bernabè tells Euromoney exclusively why he held them back. He hoped a cogent industrial plan for tomorrow would carry more weight than windfall profits today for investors and banks. He tried to run the giant telecom firm as usual, recoiling from any measure he wouldn't have taken in the ordinary course of events. He didn't understand that takeover battles are extraordinary episodes – bare-knuckle fights where victory is the imperative.
Telecom Italia attempted to fend off the Olivetti bid first by proposing a merger with TIM, then seeking to merge with Deutsche Telekom, but Colaninno's bold gambit prevailed in the end, at least in part because it kept Telecom Italia in Italian hands.
The Conquest
Olivetti outmaneuvered the opposition, convincing shareholders to support its takeover bid. On May 21, 1999 Olivetti acquired majority ownership—51.02 percent—of Telecom Italia for $65 billion in cash and securities. The takeover was heralded as a transformation of the European corporate landscape. As Europe's largest hostile takeover and the first financed by the Euro dollar, it came at the moment when all of Europe seemed eager to test its flourishing markets. That tiny Olivetti could successfully orchestrate the hostile takeover of the former state-run monopoly was shocking, drawing comparisons to both David and Goliath and the sensational Wall Street battles of the 1980s. European companies immediately recognized their vulnerability, and accepted the concept of a shareholder voice, which had been ignored in favor of the established, inside management.
In February 1999, Mr Colaninno led Olivetti in a public tender offer for Telecom Italia worth more than €60 billion, the largest takeover bid ever made in Italy up to that time. Olivetti acquired approximately 51% of Telecom Italia and Mr Colaninno was appointed Chairman and Chief Executive Officer of the company, as well as Chairman of TIM, holding these posts until July 31, 2001.
The Fatal Flaw: Debt
Here was the poison pill disguised as victory. The company needed to address widely dispersed holdings and bloated staffing levels, as well as establish an international presence. The takeover had saddled the company and its majority owner, Olivetti, with massive debt. A plan to transfer the company's most valuable asset, Telecom Italia Mobile, to Tecnost, a shell company that Olivetti used to finance the hostile takeover, was met with shareholder disapproval and quickly aborted.
He gained international fame in 1999 when his IT company Olivetti took over Italy's then-telecommunications monopoly Telecom Italia, a company several times its size. The leveraged buyout was worth $58 billion, making it the largest hostile company takeover to date. The buyout was seen as a defining moment in Italian and Western European capitalism. The euro had launched as a currency earlier that year.
The leveraged buyout model that had transformed American corporate finance in the 1980s had arrived in Europe—with predictably mixed results. Colaninno's genius was recognizing the opportunity in Telecom Italia's dispersed ownership; his tragedy was that servicing the acquisition debt would cripple the company's ability to invest for decades.
VI. The Tronchetti Provera Era & Debt Spiral (2001–2007)
Another Change of Hands
In 2002, Colaninno resigned from Olivetti in disagreement with the decision to sell Telecom to Marco Tronchetti Provera, and thanks to the sale of stock options and minority...
Marco Tronchetti Provera (born 1948) is an Italian businessman. He formerly served as the CEO of the Italian tire manufacturer Pirelli & C. from 1992 to 2022, where he continues to serve as executive vice chairman. Marco Tronchetti Provera was born in Milan in 1948. In 1971, Provera obtained an Economics and Business Administration degree from the Bocconi University of Milan. Provera joined Pirelli & C. in 1986. In 1987, he married Cecilia Pirelli, the daughter of the company's founder, CEO, and chairman, Leopoldo Pirelli. In 1992, Pirelli chose to step down from his role as CEO following an unsuccessful merger with the German auto parts firm Continental. Pirelli would retain his position on the board and appoint Provera, his son-in-law, to succeed him as CEO. In 2001, Provera acquired a controlling stake in Telecom Italia's main holding and became chairman of the company.
Tronchetti Provera was a different breed from Colaninno: polished, connected to Milan's financial establishment through his marriage into the Pirelli dynasty, and more comfortable in opera boxes than factory floors. Some observers assumed that he had obtained his position through family connections, but Tronchetti Provera proved to be an astute businessman who revitalized the declining Pirelli. In 2001 Pirelli was part of a group that took control of Telecom Italia, and Tronchetti Provera began to put his skills to the test once again in an attempt to restore a failing firm.
In 2001 Pirelli and the Benetton company bought Telecom Italia for $6.1 billion. The price reflected only the controlling stake, not the enterprise value—but it demonstrated how financial engineering allowed small investments to control enormous assets.
In carrying out the transaction, Provera had taken advantage of his family ties to join forces with the Benetton family, at the same time bringing on board two of Italy's largest banks, Bunco Intesa and Unicredito, together with the independent investment fund, Hopa, to structure a €7bn deal to take a 27 percent stake in Olivetti, thus taking control of Telecom Italia. To facilitate the transaction, Pirelli established a new holding company named Olimpia, with Pirelli holding a 60 percent stake in the new company.
The Debt Spiral Begins
By the end of 2002 Telecom Italia had posted a $1.7 billion profit after losing nearly the same amount in 2001. His formula for turning around Telecom Italia including selling off assets, reducing debt, bringing in new managers, and succeeding in the mobile phone sector.
But the underlying leverage never went away. The pyramid structure—where small equity stakes at the top controlled successively larger companies below—meant that any operational stress at Telecom Italia would cascade upward. And operational stress was coming.
By 2001, the company was in debt and was acquired by Marco Tronchetti Provera. The 2003 merger of Olivetti into Telecom Italia, enabled by Italian legislation permitting leveraged buyouts, was the decisive moment. The acquiring vehicle's debts were pushed down onto the operating company. Net debt exploded from €18 billion to €33 billion between 2002 and 2003.
Mounting Debt and Resignation
Telecom Italia reported mounting debts in 2005, and, one year later, CEO Marco Tronchetti Provera resigned.
September 2001 - September 2006: Chairman of Telecom Italia S.p.A—Tronchetti Provera's tenure coincided with the telecom sector's deepest challenges. The dot-com bubble had burst, European mobile markets were maturing, and competitors were eroding Telecom Italia's domestic monopoly advantages.
In 2007, Pirelli sold Olimpia – and hence its entire shareholding in Telecom Italia – to a group of Italian banks and investors including Intesa, Mediobanca, Generali, Sintonia and Telefonica.
The pattern was now established: each change of control added debt rather than reducing it, as new owners paid premiums to their predecessors and pushed acquisition financing onto the operating company. The telecom monopoly that had been debt-free in 1997 was now groaning under obligations exceeding €30 billion.
VII. The Telefónica-Telco Years: Strategic Paralysis (2007–2015)
The Italian-Spanish Consortium
In 2007 the company was bought by Telco, a consortium of TelefĂłnica and several Italian banks. TelefĂłnica owned 46% of Telco, the holding company that controlled 22% of Telecom Italia.
This structure reflected the conflicting imperatives of Italian corporate governance. Telefónica—Spain's telecom giant—had strategic interest in controlling Telecom Italia's valuable Brazilian operations, which competed directly with its own subsidiary Vivo. But Italian political sensitivities required maintaining nominal Italian ownership, hence the consortium with domestic banks.
In late 2013, TelefĂłnica announced its intention to acquire the entirety of Telco by January 2014, potentially becoming Telecom Italia's largest shareholder. The plan, however, is being challenged by the Brazilian competition authority since TelefĂłnica and Telecom Italia, with Vivo and TIM respectively, are the two largest telephone companies competing in Brazil.
The regulatory conflict in Brazil stymied Telefónica's strategic ambitions. Unable to fully consolidate, unwilling to sell, the Spanish telco was stuck—and Telecom Italia's governance remained contested and unclear.
The Competitive Onslaught
Meanwhile, the Italian market was transforming. Italy's telecom market is primarily dominated by five key players: Vodafone, TIM, Wind Tre, Fastweb, and Iliad. Each ISP has its strengths and challenges, creating a dynamic landscape for consumers.
The agreement was prompted by the proposed merger of existing operators Wind and 3 Italia—selling off assets to Iliad was part of their "remedy package" to ease regulatory concerns that a tie-up would harm competition. Iliad, which is owned by French entrepreneur Xavier Niel, went on to launch mobile services in May 2018. The firm hit the ground running with a million customers signed up in its first 50 days.
The French firm's arrival prompted a price war in the Italian cellular market, with competitors also keen to target the lower end of the sector. TIM introduced a budget sub-brand under the name Kena in 2017, ahead of Iliad's entrance, while Vodafone made a similar move in June 2018 with its "ho" offering.
Iliad's aggressive pricing devastated industry economics. The low-cost disruptor forced incumbents into defensive responses—sub-brands, promotional offers, and perpetual price competition—that compressed margins across the sector. Intense competition among established players like Telecom Italia, Vodafone, Wind Tre, and Iliad Italia, along with the emergence of new players, puts pressure on pricing and profitability.
By 2015, Telecom Italia faced a brutal competitive environment, a crippling debt load, and no clear strategic direction. The stage was set for the next chapter of ownership drama.
VIII. The Vivendi-Elliott Clash & KKR Endgame (2015–2024)
Vivendi's Entry
French media conglomerate Vivendi—controlled by billionaire Vincent Bolloré—began accumulating Telecom Italia shares in 2015. The Italian State has exercised the "Golden Power" on TIM since 2017, which allows the government to take a number of actions when the strategic interests of the country are concerned.
Vivendi owns nearly 24 percent of Telecom Italia shares while on the other side Elliott Management owns just under 9 percent.
Vivendi's intentions were never entirely clear. Was it seeking synergies between its media content and TIM's distribution? Pursuing Brazilian opportunities? Simply playing financial games with an undervalued asset? The ambiguity fueled investor frustration and regulatory suspicion.
Elliott Management's Assault
Elliott Management's acquisition of a 6% stake in Telecom Italia in March 2018 sparked a battle for control with Vivendi, as the hedge fund aimed to address governance issues, enhance shareholder value, and align TIM with international best practices.
Paul Singer's Elliott Management has won a bitter battle for control of Telecom Italia. Elliott Management, an activist fund run by its billionaire founder Paul Singer, won the vote securing two-thirds of seats on Telecom Italia's board. Elliott had accused Vivendi of failing shareholder interest in Italy's biggest phone company and subsequently forced Friday's vote over the company's stewardship. Telecom Italia's shareholders have voted to form a new board, ending a bitter battle for control between activist investor Elliott Management and French conglomerate Vivendi.
Despite recent returns to growth in both revenue and EBITDA after years of persistent declines, TIM's stock remains significantly undervalued, said Elliott. The value of TIM's ordinary shares "fell more than 35% from when Vivendi nominees joined TIM's Board of Directors in December 2015 to the day before Elliott's interest in the Company was made public".
Elliott's campaign was textbook activism: criticize incumbent management, propose board reconstitution, push for asset sales or structural changes. The hedge fund's proposal centered on separating TIM's fixed-line network—the very infrastructure Italy had built over decades—from its service operations.
This instability combined with the non-existence of a long-term view have led to a consistent rise of the corporate net debt, from €8 billion in 1999 to €25 billion in 2018.
The Network Sale to KKR
The network separation idea, debated for years, finally materialized under CEO Pietro Labriola. TIM confirms the completion of the sale of NetCo to Kohlberg Kravis Roberts & Co. L.P. ("KKR"), via the transfer to FiberCop (a 58% owned subsidiary of TIM) of TIM's business unit comprising the fixed network infrastructure and wholesale activities. The sale of NetCo, valued at up to €22.0 billion, including earn-outs linked to the fulfilment of certain conditions, allows TIM to reduce its net financial debt in line with its previous disclosure to the market.
As the first European mover, we chose to separate the fixed network infrastructure services from the other services we provide, to ensure the best, sustainable and fastest possible development of TIM. TIM will remain the reference Telco in Italy and will continue to be the country's most infrastructure-rich operator, offering innovative services, across both fixed and mobile services, serving families, the Public Administration and businesses.
Telecom Italia (Tim) will finalize the historic sale of its fixed-line network to U.S. fund Kkr on July 1, a deal that will make Tim the first telephone operator in a major European country to part with its fixed-line network.
Tim's fixed fiber and copper network reaches nearly 89 percent of homes and spans more than 23 million kilometers across the country, making it the main component of Italy's telecommunications infrastructure.
Vivendi's Opposition
Vivendi fought the sale furiously. However, the deal still faces a legal challenge from TIM's top investor, Vivendi, which has previously called the deal "unlawful." French media group Vivendi slammed the agreement, stating that the rights of Telecom Italia's shareholders "have been trampled on," back in November. Vivendi, which owns a 24 percent stake in TIM worth €1.3 billion ($1.4bn), is considering its future with the company.
The French group argued that such a fundamental transformation required shareholder approval—and that the network was being sold at fire-sale prices to alleviate a debt crisis that successive managements had created.
The Debt Solution
This infrastructure sale will transfer over half of TIM's domestic workforce to the newly formed network entity, significantly reducing TIM's headcount in Italy to around 16,000 employees. Financially, the deal is expected to cut TIM's debt by €14 billion ($15.02 billion) and lower its leverage ratio, giving it the financial flexibility needed to strengthen its presence in the domestic retail market and pursue potential mergers and acquisitions. TIM will retain its core business units focused on consumer services, enterprise connectivity and cybersecurity, and operations in Brazil. This restructuring comes as a strategic move following mounting debt, competitive pricing pressures, and higher interest rates.
The sale of NetCo, valued, as known, at up to EUR 22 billion including earn-outs linked to the occurrence of certain conditions, allows TIM to reduce its financial debt by EUR 14.2 billion, as already anticipated to the market.
Post-Sale Developments
Following the transaction, TIM's total headcount will decrease from 37,065 to 17,281, equal to 16,135 full-time equivalents.
Italian infrastructure fund F2i will have a 10 percent stake, while Abu Dhabi's sovereign wealth fund Adia and Canada Pension Plan will have shares of 20 percent and 17.5 percent, respectively.
The Ministry of Economy and Finance considers this network a strategic asset for Italy leading to a 16% investment. The Italian government's participation provided political cover—this wasn't purely a selloff to foreigners, but a structured partnership maintaining state involvement in critical infrastructure.
By late 2024, the transformation was complete. TIM emerged as a much smaller company—focused on retail services in Italy and its Brazilian operations—with manageable debt but without the infrastructure assets that had defined Italian telecommunications for a century.
IX. TIM Brasil: The Crown Jewel That Survived
While the Italian operations spiraled through ownership battles and debt restructuring, TIM Brasil quietly became the company's brightest story. TIM Brasil was founded in 1995 and started commercial operations in 1998. Since 2002, has consolidated its national presence, becoming the first mobile phone operator present in all Brazilian States and, as of April 2017, has over 61.3 million customers. The company, through the GSM technology, has a national reach of approximately 93% of urban population and offers services to mobile and fixed telephony, data transmission, and Internet access at high speed.
Strong Financial Performance
Revenues for 2024 of the Brazil Business Unit (TIM Brasil group) amounted to 25,448 million reais (23,834 million reais in 2023, +6.8%). The growth was determined by service revenues (24,588 million reais vs 23,071 million reais for 2023, +6.6%) with mobile telephony service revenues growing 6.8% in 2024 due to the continuous improvement of the post-paid segment. Mobile ARPU for 2024 was 31.4 reais (29.5 reais in 2023, +6.2%). Total mobile lines at December 31, 2024 amounted to 62.1 million, +0.9 million lines compared to December 31, 2023 (61.2 million lines).
TIM Brazil, one of the country's leading telecommunications providers, reported record-breaking financial results for the fourth quarter of 2024. The company achieved a normalized net profit of R$1.055 billion ($176 million), a 17.1% increase over the same period in 2023, marking its highest quarterly profit ever. For the full year, net income grew by 6.8%, reaching R$25.4 billion ($4.233 billion). These results highlight TIM's ability to capitalize on market opportunities while maintaining operational efficiency. The company's growth was primarily driven by its mobile internet business, particularly in the postpaid segment, which saw revenues rise 9.5%.
Network Expansion and 5G Leadership
TIM Brazil says 5G is now available in 266 cities, including all capitals. TIM Brazil has a 5G subscriber base of 6.167 million at the end of March 2024. Total subscriber base reached 61.42 million.
Normalized Mobile ARPU (average monthly revenue per user) reached R$30.3, the highest in the sector, represented by a expansion of 8.8% YoY – the highest growth for a 1st quarter in the Company's history – which, once again, corroborates our strategy of increasing monetization of the customer base.
TIM Brasil's success reflects the company's ability to execute in a growing market. Brazil's telecommunications sector has consolidated significantly, with TIM acquiring portions of bankrupt competitor Oi's mobile operations in 2022. The competitive dynamics are less brutal than in Italy, and the prepaid-to-postpaid migration creates natural ARPU uplift.
With a net debt of R$10.5 billion ($1.75 billion) and free cash flow up 19.6% to R$2.354 billion ($392 million), TIM remains financially stable. The company is well-positioned for future growth. CEO Alberto Griselli emphasized the company's commitment to innovation and readiness for a competitive 2025. The company is targeting annual revenue growth of 5% and continued shareholder returns.
For the "new TIM"—post-network-sale—Brazil represents the growth engine. The Italian domestic operations, now purely retail-focused, face margin pressure and mature-market dynamics. Brazil offers demographic tailwinds, infrastructure investment opportunities, and the potential for continued market share gains.
X. Playbook: Business & Investing Lessons
The Perils of Leveraged Buyouts
The Telecom Italia saga offers a master class in how leveraged acquisitions can destroy long-term value. A company that was debt-free at privatization in 1997 accumulated over €30 billion in obligations through successive changes of control—Olivetti in 1999, Pirelli in 2001, Telco in 2007. Each acquisition premium was ultimately paid by the operating company's balance sheet.
The mathematics are brutal: telecom companies require continuous capital investment in network infrastructure; debt service competes directly with that investment; and when competitors are investing more, the debt-burdened incumbent loses ground irreversibly.
Privatization Without Governance
In crucial moments (privatization, takeovers, reorganization plans), the political system was able to choose between removing itself from the telecommunications sector, or declaring a public interest in its control. A middle path was chosen, in which the government negotiates with private interests but without a clear industrial policy. Financial operators, for their part, participate in the game in a speculative fashion, with limited means, unable to project a convincing industrial plan.
Italy's approach combined the worst elements of market capitalism and state intervention: no controlling shareholder to impose discipline, no clear government policy to guide investment, but constant political interference in strategic decisions. The "Golden Share" gave the state a veto without responsibility; the dispersed ownership invited raiders without defenders.
The Network vs. Service Paradox
Perhaps the deepest irony is that the fixed-line network—the asset everyone fought to control—ultimately became a liability. Building and maintaining copper and fiber infrastructure requires enormous capital; the returns come slowly; and competitors can access the network through wholesale arrangements without bearing the capital burden.
TIM's eventual decision to sell the network to KKR represented a strategic acknowledgment: better to be a nimble service company buying wholesale access than a capital-intensive infrastructure owner competing with aggressively-priced rivals.
Capital Allocation Disasters
Throughout the saga, Telecom Italia distributed dividends while underinvesting in fiber and 5G. The logic was circular: debt service consumed cash flows, so operating investment was constrained, so competitive position eroded, so debt service became more burdensome. Meanwhile, competitors—including state-backed Open Fiber—built the next-generation networks that Italian consumers increasingly demanded.
The prepaid mobile card that TIM invented in 1996 exemplified innovation during the state-monopoly era. No comparable innovation emerged during the two decades of private-equity ownership and financial engineering.
XI. Porter's 5 Forces & Hamilton's 7 Powers Analysis
Porter's 5 Forces Analysis
| Force | Assessment |
|---|---|
| Threat of New Entrants | MODERATE-HIGH – Regulatory barriers declining. Iliad's 2018 entry demonstrated that determined disruptors can build subscriber bases rapidly. However, capital requirements remain substantial for network buildout. |
| Supplier Power | LOW – Network equipment vendors (Ericsson, Nokia, Huawei) face intense competition. TIM has bargaining leverage as a major customer. |
| Buyer Power | HIGH – Customers face low switching costs, especially in mobile. Prepaid dynamics and number portability enable easy migration to lower-price offers. Enterprise customers have significant negotiating leverage. |
| Threat of Substitutes | MODERATE – OTT services (WhatsApp, Zoom) substitute for traditional voice and messaging. However, these applications still require network access, making the substitution partial. |
| Competitive Rivalry | VERY HIGH – The Italian telecom market exhibits a moderate level of concentration, dominated by a few major players like TIM, Vodafone, Wind Tre, and Iliad Italia, competing fiercely for market share. Price wars have compressed margins across the industry. |
Hamilton's 7 Powers Analysis
| Power | Assessment |
|---|---|
| Scale Economies | WEAKENED – Network separation eliminated TIM's infrastructure scale advantage. Competitors access the same wholesale network. Remaining scale advantages are in customer service and brand. |
| Network Effects | MINIMAL – Unlike platform businesses, telecom services have limited direct network effects. Interconnection requirements ensure interoperability across carriers. |
| Counter-Positioning | ABSENT – TIM has not adopted a business model that incumbents cannot replicate. Iliad successfully counter-positioned against incumbents with simplified, low-cost offerings. |
| Switching Costs | LOW – Number portability and contract flexibility minimize customer lock-in. Enterprise contracts provide some stickiness, but consumer switching is essentially frictionless. |
| Branding | MODERATE – TIM retains brand recognition in Italy and strong position in Brazil. However, commoditization of telecom services limits brand premium. |
| Cornered Resource | ELIMINATED – The fixed-line network—TIM's unique asset—has been sold. Remaining spectrum assets are valuable but not irreplicable. |
| Process Power | DEVELOPING – TIM Enterprise's IT services and cybersecurity capabilities represent potential process advantages. Brazilian operations demonstrate execution capability. |
Competitive Position Summary
The "new TIM" following the network sale operates without traditional incumbent advantages. The Swisscom–Vodafone deal and TIM's NetCo sale are expected to curb price wars, improve investment capacity, and foster value-based competition. Industry consolidation may improve profitability, but TIM enters this phase as a fundamentally transformed—and diminished—competitor.
Four national operators—TIM, Vodafone-Fastweb (under Swisscom), WindTre, and Iliad—form a moderately concentrated market. The pending integration of Vodafone Italia with Fastweb will create a converged rival, holding robust fiber assets and 22,000 mobile sites, thereby narrowing the scale gap with TIM.
Key Performance Indicators to Monitor
For investors following TIM's ongoing transformation, three metrics deserve primary attention:
1. Domestic Service Revenue Growth (Year-over-Year) This captures TIM's ability to compete effectively post-network-sale. With infrastructure costs now externalized through wholesale agreements, service revenue growth directly impacts profitability.
2. Net Debt / EBITDA After Lease The primary rationale for the network sale was deleveraging. Monitoring this ratio confirms whether TIM is maintaining financial discipline or sliding back into overleveraged territory. The post-sale target of approximately 1.6-1.7x represents a dramatic improvement from the 4x+ levels that characterized the crisis years.
3. TIM Brasil EBITDA Growth (in BRL) Brazil represents TIM's growth engine. EBITDA growth in local currency—before exchange rate impacts—measures operational execution in the company's most promising market.
XII. Conclusion: What Remains
The Telecom Italia story ends—or rather, enters its latest chapter—with a fundamental paradox. The company that pioneered prepaid mobile telephony, that built Italy's telecommunications infrastructure, that attracted over two million retail investors in its 1997 privatization, has been systematically dismantled over three decades of financial engineering.
Franco Bernabe, a former CEO of Telecom Italia, mourned the deal, saying that once the actual telecom infrastructure is sold, the company is essentially finished, and the group will be sold off one piece at a time.
Yet one can construct a more optimistic narrative. TIM today operates with manageable debt, clear strategic focus, and a genuinely strong Brazilian franchise. Group service revenues reached €9.4 billion, up 3.0% year-over-year. Group EBITDA After Lease rose 5.3% to €2.7 billion; domestic EBITDA AL up 4.1%. All previously communicated guidance for 2025 is confirmed, with expectations of accelerated growth in Q4. Group revenues to grow 2-3%, EBITDA AL 5-6%, CAPEX ~14% of revenues, leverage below 1.9x (excluding Sparkle).
For long-term investors, the lessons are sobering:
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Governance matters more than assets. Telecom Italia possessed valuable infrastructure, innovation capability, and market position—but governance failures allowed successive owners to extract value rather than create it.
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Debt is destiny. The company's trajectory was determined the moment Olivetti's leveraged buyout loaded acquisition debt onto the operating company. Everything that followed—the dividend cuts, the underinvestment, the ultimate asset sale—flowed from that original sin.
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Political uncertainty destroys value. Italy's ambivalent stance—claiming strategic interest in telecommunications while refusing to articulate clear policy or provide capital—created the worst possible environment for long-term investment.
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Innovation requires reinvestment. TIM's prepaid card invention demonstrated genuine capability; its subsequent failure to lead in fiber or 5G demonstrated what happens when cash flows service debt rather than fund development.
The Italian fixed-line network now belongs to KKR and its institutional partners. TIM retains its mobile operations, its enterprise services business, and its Brazilian growth engine. Whether this smaller, more focused company can build value—rather than simply be the next acquisition target—remains the open question.
The champagne cork that flew from Mediobanca's window in May 1999 marked the triumph of financial engineering over industrial strategy. Twenty-five years later, we can tally the costs: a debt-free national champion transformed into a perpetual workout; a century of infrastructure investment transferred to foreign ownership; and a cautionary tale for anyone who believes that privatization alone, without governance reform and clear policy direction, can transform state monopolies into world-class competitors.
For investors, the enduring lesson is this: watch the balance sheet. The most valuable franchise can be destroyed by financial leverage. And when management talks about "unlocking value" through corporate restructuring, ask who captures that value—and at what cost to long-term shareholders.
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