KKR’s €22bn takeover of Telecom Italia’s landline network was a bold bet on a heavily regulated asset still closely entwined with the state.
But two years after the FiberCop deal closed, some of the assumptions underpinning the US private capital group’s plan have proved badly wrong, with line connections well below target, leverage stubbornly high and relations with its biggest customer — Telecom Italia, or TIM — increasingly fraught.
KKR must now turn around the business fast enough to keep alive its plan to float FiberCop by the end of the decade, while fending off pressure from Rome for it to merge with smaller, state-controlled rival Open Fiber.
“The endgame isn’t clear at this point,” said one senior industry executive. “But the gloves have come off.”
The US private capital group has already overhauled FiberCop’s leadership, underscoring the difficulties facing the business.
Three of the five-strong executive committee assembled after last year’s exit of chief executive Luigi Ferraris have left, including strategy boss Riccardo Busani — a former KKR executive who conducted due diligence on FiberCop — and commercial and corporate chiefs Simone Bonannini and Alberto Boffelli.
FiberCop says the departures have caused no operational disruption and in September appointed former Bain executive Marco Nespolo as its new CEO.
KKR’s investment case rested on FiberCop managing the decline of its copper network while expanding fibre connections, cutting costs and eventually reducing capital expenditure.
FiberCop operates much of Italy’s fixed telecoms infrastructure and is central to the government’s push to expand fibre coverage. Rome is both a shareholder and a major backer, providing the company with about €2.3bn of EU recovery funds for its rollout.
The company was always going to require heavy investment. Like other former telecoms monopolies across Europe, heavily indebted TIM was facing a multibillion-euro upgrade programme when it decided to sell the asset.
TIM sold a 37.5 per cent stake to KKR in 2021 before agreeing in late 2023 to sell the rest to a KKR-led consortium, allowing it to cut debt and shift the cost of upgrading the network.
Since then, losses on the legacy network have run well ahead of forecasts. FiberCop lost about 800,000 active lines over the past year, reducing its customer base by more than 5 per cent.
KKR’s initial investment assumptions, seen by the FT, projected more than 15mn active lines by the start of this year. Instead, FiberCop was still 1.6mn below that target at the end of June — equivalent to roughly €230mn in annual revenue at the €145 per line paid by Telecom Italia.
The private equity group insists its deal remains on track. It told the FT that “FiberCop is performing in line with the original investment case [ . . . ] and we have every confidence in its long-term success as a cornerstone of Italy’s digital transition”.
FiberCop argues the headline line losses obscure the transition under way. The number of active domestic fibre connections in Italy rose 26 per cent in the year to the end of June, official figures show, mostly driven by FiberCop.
The company also says it has locked in €198mn of cost savings through job cuts, new IT systems and more efficient equipment, with much of the benefit coming through in the second half of this year.
The savings are crucial. To hit this year’s €1.9bn earnings target, the company needs a sharp increase in profits in the second half after reporting just €800mn in the first. That would require growth to accelerate to an “increasingly ambitious” pace, according to James Ratzer of New Street Research.
“Italian broadband competition, both from mobile and other fibre players, has been more intense than expected . . . which has meant an uphill battle for the new owners,” he added.
One person familiar with the company’s strategy said that while “you can make the business leaner . . . you can’t cost-cut your way to growth forever”, adding that “at some point FiberCop needs to stabilise volumes, raise prices or find new revenues”.
Another challenge is the company’s relationship with its previous owner, which is increasingly strained.
Telecom Italia has objected to FiberCop’s tariffs in court, albeit unsuccessfully. It complained to the regulator about deteriorating service quality, and is pushing to revise its long-term agreement with FiberCop to lower prices for network access, potentially putting further pressure on its already declining revenues. FiberCop insists there has been no decline in its performance indicators since the KKR deal.
State-controlled Poste Italiane’s takeover of Telecom Italia adds another complication, increasing Rome’s influence over Italy’s telecoms infrastructure.
The Italian state controls 60 per cent of FiberCop’s smaller rival Open Fiber, which has struggled with high debt and delays to its fibre rollout despite billions of euros of public investment.
Rome has long pushed for greater integration between the two networks. But talks on a potential merger have stalled over disagreements on valuation, investment obligations and the future structure of the networks, according to two people familiar with the matter. The Italian government is now focusing on a commercial arrangement, they said.
Tensions have also escalated over the allocation of government-backed broadband projects, with FiberCop challenging alleged state aid to its rival in Brussels. A merger completed before the end of 2026 would also have triggered a €2.5bn payment to TIM, further complicating negotiations.
The challenges have left KKR navigating a considerably more complicated investment than the one it envisaged when it agreed to buy the network in 2023, according to insiders.
“On paper, this was supposed to be a relatively straightforward infrastructure investment that would start generating substantial returns fairly quickly,” said the person familiar with the company’s strategy.
“But turning a business carved out of a former state monopoly into a profitable standalone company . . . is proving much harder than anticipated.”