Italy wants to bring TIM's Sparkle unit into state hands, sources say

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By Giuseppe Fonte and Elvira Pollina

ROME (Reuters) -Italy's government wants to bring Telecom Italia (BIT:TLIT)'s (TIM) submarine cable unit Sparkle into state hands, three sources close to the matter told Reuters.

The plan emerged after the government on Thursday started talks with leading TIM investors Vivendi (OTC:VIVHY) and state lender Cassa Depositi e Prestiti (CDP) to identify "the best market-friendly options" for the phone group.

Prime Minister Giorgia Meloni's administration aims to secure control of TIM's landline grid, an asset deemed of strategic importance, to create a wholesale-only broadband player.

But the sources added that Rome also wants a spin-off of Sparkle, given the sensitivity of the data it carries, in order to put the unit into state hands.

TIM declined to comment.

Sparkle, an international wholesale telecoms operator entirely owned by TIM, manages fibre cables that stretch over 500,000 kilometres. Its submarine network transmits information between countries in Europe, the Mediterranean and the Americas.

Industry sources indicate a valuation of almost 1 billion euros ($1.06 billion) for Sparkle.

TIM said it needed to sell assets to cut its debt after a sale of its wholesale fixed operations, including Sparkle, to CDP was put on hold by the new government.

The mooted multi-billion grid deal, part of a wider project to create a unified Italian network company combined with CDP's broadband unit Open Fiber, was a focal point of TIM CEO Pietro Labriola's strategy to turn around cash- bleeding TIM and cut its 25-billion-euro net debt pile.

Labriola, who is under pressure to revise his strategy, has been sounding out investors' interest in the assets of the former phone monopoly.

He met with representatives of Global Infrastructure Partners (GIC) to discuss a potential investment by the infrastructure fund into its landline grid, Reuters reported on Wednesday.

U.S. fund KKR, which already owns a stake in TIM's last-mile network and had an attempt to take over TIM as a whole rejected this year, has also recently renewed its interest in tightening its grip on TIM's landline grid.

Any deal involving national and foreign investors and TIM assets will be subject to government scrutiny under "golden power" regulation, which gives Rome the possibility to block the transaction or set tough prescriptions.

The sources said there would at least be three more government-sponsored meetings with TIM's stakeholders, with one scheduled for Dec. 20.

Vivendi CEO Arnaud De Puyfontaine was seen by Reuters leaving the industry ministry in Rome. He declined to answer when asked if the meeting had gone well.($1 = 0.9394 euros)