All the trouble on Open Fiber
What happens to Open Fiber? Facts, numbers and insights
Political, financial and industrial turmoil for Open Fiber, the company controlled by Cdp and Macquarie which has to lay optical fiber in Italy.
Here are all the details.
THE POINT ON OPEN FIBER
Seriously behind on the implementation of the Italy 1 Giga Plan promoted by Pnrr funds and implemented by Infratel for ultra-broadband in gray areas, the executive decided to lend a hand to Open Fiber.
In mid-April the government presented an amendment to the so-called "save Open Fiber" Pnrr decree relating to the gray areas. This was reported on April 10 by Il Sole 24 Ore . Approved by the Budget Commission, the decree for the implementation of Pnrr AC 1752 has arrived in the Chamber for voting and the final vote is expected today before moving to the Senate.
The provision will allow Open Fiber and Tim (the other successful bidder of the “Italy 1 Giga Plan”) to cover the adjacent house numbers, not included in the tenders, in exchange for real estate units in the lots won which turned out to be non-existent, due to an initial mapping proved to be fallacious.
The Italian Association of Internet Providers, which has turned to the EU DgComp, disapproves. The AIIP “requests the intervention of the European Commission following the presentation by the Government of an amendment during the conversion of Legislative Decree no. 19/2024, aimed at ex post modifying the “1 Giga Italy” tender notices, in contrast with the provisions on state aid, and with the effect of seriously distorting competition on the TLC market.”
In the meantime, the executive should give the green light to Infratel to recognize the compensation of 800 million of the extra costs incurred by Open Fiber.
All this against the backdrop of ongoing negotiations between Open Fiber leaders, partners and banks to secure the fiber optic company which in the next few years is destined to merge into Tim's Netco sold to Kkr.
Here is the updated situation point by point on the company that keeps shareholders, banks and politicians anxious.
WHAT DOES THE AMENDMENT PRESENTED BY THE SALVA OPEN FIBER EXECUTIVE INVOLVE?
With a Government amendment (20.31 ) approved by the Chamber Commission, the art. 20 of the decree-law in question presents a new paragraph 5-bis, which modifies the content of the obligation weighing on the beneficiaries (Tim and Open Fiber) of the Pnrr funds relating to Mission 1, Component 2, Investment 3.
The art. 20 paragraph 5-bis of the decree now provides that "[…], the beneficiaries of public contributions fulfill the obligations established by the agreements in force with the company Infratel Italia SpA by also connecting the house numbers located in proximity and having the same characteristics as those to be connect on the basis of the same agreements, identified following the outcome of the aforementioned checks, without prejudice to the final deadline for the execution of the work, the total number of house numbers to be connected, including the number of those located in remote areas envisaged by the aforementioned Investment 3 of the Pnrr, and the overall cost of the investment assumed by the beneficiaries following the tender procedure. ”
TIMES AND CONDITIONS
“The house numbers connected pursuant to the first period are calculated for the purposes of reaching the overall number of connections to be made based on the agreements in force with the Infratel Italia company” continues the text.
“For the purposes referred to in the second period, within sixty days from the date of entry into force of the law converting this decree, the definition of of the methods for identifying, for each lot, the house numbers located in proximity and having the same characteristics as those to be connected on the basis of the aforementioned agreements as well as the deadline for identifying such house numbers in proximity, which, in any case, does not must exceed thirty days from the date of signing of the aforementioned additional documents" specifies the article of the decree.
AT RISK OF REVOCATION OF THE LOTS
“In case of failure to comply with the deadline indicated in the additional documents, the Control Room for the Pnrr, referred to in article 2 of the legislative decree of 31 May 2021, n. 77, converted, with amendments, by law 29 July 2021, n. 108, following an investigation by the Pnrr mission structure referred to in article 2 of the legislative decree of 24 February 2023, n. 13, converted, with amendments, by law 21 April 2023, n. 41, proposes the activation of the substitutive powers referred to in article 12 of the same legislative decree no. 77 of 2021, to ensure the rapid implementation of the investments envisaged by the aforementioned "1 Giga Italy" Plan. The implementation of this paragraph must not result in new or greater burdens on public finances".
“Translated, this would probably lead to the revocation of the lots for which on that date Open Fiber was still in default with respect to the timetable of the agreement signed at the end of the tender” notes Il Sole 24 Ore .
THE CONSEQUENCES FOR OPEN FIBER
“If this amendment were not there, Oper Fiber would have to lay 20 thousand kilometers more of fiber with extra costs of 800 million and an additional year of work, thus risking losing the Pnrr funds” highlighted Verità&Affari.
AIIP PROTESTS
The Italian internet providers who on April 15 drew the attention of Brussels by writing a letter to the DgComp explaining that the government subsidy put in place for Open Fiber represents state aid are not on board.
According to the association chaired by Giovanni Zorzoni "this initiative risks jeopardizing, at the same time, the possibility of ultra-broadband coverage for families and businesses that should have originally been covered, and of nullifying the private investments already made by those operators who , engaging in precise coverage plans with Infratel, have connected, at their own expense, areas close to those of public intervention".
Therefore AIIP "expresses deep concern about the Government's initiative, requests that the amendment be withdrawn and urges urgent action on the part of the European Commission to prevent the consequent serious distortion of competition on the Italian telecommunications market, and to ensure a correct use of the resources allocated under the Pnrr.”
OPEN FIBER LATE ON ULTRA-WIDE BAND ROLLOUT IN GRAY AREAS
But the Open Fiber construction sites are behind schedule as part of the "Italy 1 Giga Plan" and in the event of failure to cover by June 2026, Italy risks losing 1.8 billion in European funds intended for the company.
The company for the fiber optic network led by Giuseppe Gola raised the alarm about delays in the coverage of street numbers already at the beginning of the year, confirming what has already been highlighted by the undersecretary of Palazzo Chigi with responsibility for Innovation, Alessio Butti, critical of the possibility for company to achieve its objectives.
Open Fiber therefore needs funds to continue the work and complete the construction of the network in the gray areas by 2026, the deadline to avoid losing the Pnnr funds.
ALREADY PINCHED BY THE COURT OF AUDITORS ALSO ON THE WHITE AREAS
Without forgetting that Open Fiber is struggling to bring broadband even to the white areas, i.e. those defined as "market failure" due to the absence of private investment.
Just a month ago the concurrent control board of the Court of Auditors noted a "significant delay recorded in the creation of the digital infrastructures linked to the Ultra-wide Band Plan – White Areas for the connectivity of approximately 8.4 million homes in Italy, with an expansion of the average times of the procedural phases and a forward movement of the concrete implementation compared to the original deadlines".
“According to the data as of 31 December 2023, i.e. less than a year from the expected completion date of the Plan (September 2024), all the planning steps have not yet been completed, neither definitive nor executive” complained the accounting judiciary. So much so that "the implementation of the Plan by September 2024 will require the use of significant workforces", urged the Court of Auditors.
INFRATEL EXTRA COSTS
As MF reminds us, the government's amendment to the Pnrr decree “is one of the two political assists in the game linked to the rebalancing of Open Fiber's accounts and the unblocking of the game with the banks. The other concerns Infratel's recognition of the extra costs that Open Fiber must incur in the white areas to complete the planned cabling. Just under 800 million which will arrive by October at the latest, but there would be optimism on the part of the company led by CEO Giuseppe Gola that it will be able to accelerate the times."
THE WORDS OF SCANNAPIECO
Open Fiber “recently received an award for best fiber network, it is a quality infrastructure and the current structure is not optimal; we are interested in supporting it in an institutional context in which there are some things to fix" Dario Scannapieco, CEO of CDP, declared at the beginning of the month on the subsidiary Open Fiber, reported by Radiocor . To those who asked him about the banks' pressure for a recapitalization, CDP's number one replied: "The dialogue with the banks is ongoing, the strong potential of the network is recognised".
NEGOTIATIONS ONGOING WITH BANKS AND SHAREHOLDERS
In fact, meetings are taking place between the top management of Open Fiber, Cdp Equity (shareholder with 60%), representatives of the Macquarie fund (shareholder with 40%) and representatives of the 14 financing banks of the company to secure the company of optical fiber by studying the division of a 3.2 billion maneuver between loan and equity.
“At present there is a clear divergence on the modalities of the two-step lifebelt between shareholders and creditors. To avoid default, an attempt is made to play the last card by calling a second emergency summit: after the meeting on Monday 24th in Milan, at Lazard, advisor of Open Fiber, which led nowhere with business continuity still in question danger” revealed Il Messaggero .
According to the Roman newspaper, a new attempt will be made tomorrow between top management, partners, banks and consultants. At the moment, the proposal "of the bridge by May of around 1.2 billion, between leverage and equity and the three-year long-term requirement of a total of 2 billion (again between debt and equity) by the autumn" has been rejected by the credit institutions. .
KNOTS TO BE RESOLVED WITH CREDIT INSTITUTIONS
Open Fiber on behalf of the shareholders "would have attempted to proceed with the financial plan with the unfreezing of a committed line for approximately 800 million, blocked because some conditions precedents which are contractual conditions for drawing the loan were violated. This tranche is a residue of the 7.2 billion project financing restructured a few years ago. Combined with this unfreezing there would be an equity contribution from the shareholders for a total of 375 million" continues Il Messaggero.
Finally, the newspaper concludes "The parties are distant on the granting of these resources because the institutions ask for 50% leverage and 50% equity (around 1 billion each), while the letter in response from Open Fiber specifies a percentage of 65% to be paid of creditors (1.3 billion) and 35% (700 million) of shareholders, of which 420 million from Cdp and 280 million from Macquerie. The other point of differentiation is the succession between the injection of equity and the leverage with the institutions that asked the shareholders to do their part first, receiving a refusal with the counter-proposal of pari passu and there would be a request for the involvement of Sace.”
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/tutti-i-casini-su-open-fiber/ on Thu, 18 Apr 2024 11:11:09 +0000.