TIM Brasil in talks to reacquire fibre unit stake in $170M deal

Brazilian telecoms operator TIM SA is negotiating to repurchase a 51% interest in a fibre-network company it once controlled in a deal that could be worth about $170 million, two people familiar with the matter said.

If institutional investors win out, the move would represent a strategic about-face for the company, which sold the stake four years ago amid a broader industry trend toward divesting infrastructure-related assets.

In 2021, a 51% stake in I-Systems, then known as FiberCo, was sold by TIM's majority owner, Telecom Italia, to independent communications infrastructure firm IHS Towers.

According to Reuters, the sale came amid a global trend among telecom operators to cash in on towers and fibre networks to generate cash and spread the costs of the massive investment needed to build out communications infrastructure.

Neutral fibre model under pressure

Globally, telecom companies have been using asset-light methods more and more over the last ten years, spinning off or selling infrastructure to specialised operators.

These neutral-host arrangements were developed to attract various tenants and produce scale efficiencies. However, IHS Towers and other operators in Brazil have had difficulty reaching the client scale required to maintain a stand-alone fibre company.

Like competing neutral fibre providers in the nation, IHS Towers has had trouble developing a sizable enough clientele for I-Systems.

As a result, the economics of the model have come under pressure, requiring reassessment of ownership structures. TIM Brasil would once again have complete operational control of I-Systems as a result of the proposed deal.

The share in the fibre unit may be worth around 900 million reais, or roughly $171 million, according to those involved with the discussions. The sources declined to be named because the negotiations are not public.

Telecom Italia backs negotiations

Last month, Telecom Italia, which holds a 67% stake in TIM SA, ordered the Brazilian operator to proceed with negotiations to buy back the stake, the sources said. Rothschild was appointed an adviser on the potential deal as part of that process.

The transaction could be approved by TIM SA as early as February 10, when its board meets to discuss full-year results.

However, they warned that talks could stretch beyond that date due to the intricacies of the negotiations and the need to agree on terms that would be acceptable to both parties.

Telecom Italia, Rothschild, and TIM SA representatives declined to comment on the issue. IHS Towers was unavailable for comment right away.

Parallels with rival strategy

A repurchase of IHS Towers' interest in I-Systems would be similar to a recent action taken by Vivo, a competitor of TIM SA.

Last year, Vivo reclaimed full ownership of FiBrasil, the fibre joint venture it started in 2020, reversing a prior shared-ownership structure.

The parallel underscores a broader reappraisal among Brazilian telecom providers of the balance between infrastructure sharing and direct control.

According to statistics on its website, I-Systems currently operates in 41 Brazilian cities and has a fibre network that covers areas with over 9.3 million homes.

As competition in Brazil's broadband market heats up, the network's size makes it a strategically significant asset for TIM.

The current structure of joint ventures

I-Systems is in charge of developing new fibre infrastructure for TIM and overseeing its upkeep and operation under the terms of the current joint venture agreement.

TIM, in turn, serves as the anchor tenant under a long-term master services agreement, providing a baseline level of demand for the network.

Regaining complete ownership would enable TIM to better integrate the fibre business into its larger operations, possibly streamlining decision-making and coordinating investment objectives.

The possible agreement highlights how changing market conditions are forcing telecom companies to reevaluate tactics used during the height of infrastructure divestitures, even though negotiations are still underway.