KKR's FiberCop investment faces pressure as Italy network targets slip

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KKR's FiberCop investment pressure

Highlights

FiberCop loses about 800,000 active lines in the past year, leaving it 1.6mn lines below KKR's 15mn target by mid-2024.
Telecom Italia pays about €145 per line, implying €230mn annual revenue tied to the missing volume amid a 5 per cent customer decline.
FiberCop needs rapid earnings acceleration to hit its €1.9bn 2024 target after delivering €800mn in H1, with management reshuffled and Marco Nespolo appointed CEO.

Operational targets and turnaround pressure

As reported by Financial Times, KKR's investment case for FiberCop rests on managing the decline of the legacy copper network while expanding fibre connections, lowering costs and eventually reducing capital expenditure. The group buys the rest of Telecom Italia's landline network business in late 2023 after first taking a 37.5 per cent stake in 2021, in a deal that values the asset at about €22bn and leaves FiberCop central to Italy's fibre rollout.

That plan is coming under pressure as losses on the old network run ahead of forecasts. Over the past year, FiberCop loses about 800,000 active lines, cutting its customer base by more than 5 per cent, and by the end of June it remains 1.6mn lines below KKR's original target of more than 15mn active lines by the start of this year.

The shortfall carries a direct revenue impact because Telecom Italia pays about €145 per line, implying roughly €230mn in annual revenue tied to the missing volume. FiberCop says its business remains in line with the original investment case and points to a 26 per cent rise in active domestic fibre connections in Italy in the year to the end of June, with much of that growth driven by its network.

The company also says it locks in €198mn of cost savings through job cuts, new IT systems and more efficient equipment, with much of the benefit expected in the second half of this year. Even so, after reporting €800mn in earnings in the first half, it still needs a sharp acceleration to reach its €1.9bn full-year target, a pace that analysts describe as increasingly ambitious.

KKR has already reshaped management as it tries to speed up the turnaround. Following the departure last year of chief executive Luigi Ferraris, three members of the five-person executive committee leave, and in September the company appoints former Bain executive Marco Nespolo as CEO.

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