The Italian antitrust authorities will launch an investigation into Enel’s purchase of Infostrada.
Vodafone, the world’s leading mobile phone operator, bought Italian telco Infostrada as part of its acquisition of Mannesmann. It was never intended to be a long-term investment. Fortunately for Vodafone, Italy’s dominant electricity generator and supplier Enel is looking to build its telecoms interests.
The sale as agreed in October would have given Vodafone a useful E12.1 billion in cash and bonds – useful particularly as telcos’ debt mounts and raising money from the stock markets become less of an option. It would also have been a good fit with Enel’s majority-owned Wind wireless unit, allowing the company to put up a serious challenge to incumbent telco Telecom Italia.
However, the very reason why Enel is looking to expand its telecoms services is threatening the deal. European regulators are becoming less and less tolerant of dominant utilities – indeed, Enel is currently in the process of selling 30% of its generating capacity at the regulator’s insistence. The Italian regulator will be well aware that in deregulated markets, incumbent operators have been extremely good at maintaining market share through the same cross-selling Enel wants. Former UK gas supplier Centrica is now the third largest electricity supplier to the UK residential sector.
Exactly who the probe hits and how hard will depend on the regulator’s decision. The most likely outcome is that Enel will have to sell still more of its generating capacity and possibly give up some of its customers. This may still not too bad for Enel – power firms elsewhere have found it more profitable to split generating and supply companies. It may well decide the gains outweigh the losses.
However, if the regulator’s conditions are more onerous, then things could look bleak for Vodafone. There are few obvious candidates other than Enel willing to pay large sums for an Italian fixed-line telco in the current market climate. Enel, however, has much less to lose. It’s likely to remain strong in Italy for quite a while, with or without Infostrada.
