Telecom Italia SpA
MIL:TIT
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Telecom Italia SpA
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Ladies and gentlemen, good afternoon, and welcome to Telecom Italia Full Year '21 Results and 2022-2024 Plan Conference Call.
Carola Bardelli, Head of Investor Relations, will introduce the event.
Ladies and gentlemen, good afternoon. A very warm welcome to our full year 2021 results and strategic plan presentation. I'm here with our CEO, Pietro Labriola; our CFO, Adrian Calaza; and the management team. Pietro will take you through the whole presentation, while Adrian and the management team will be available to take your questions in the Q&A session.
Pointing out to you our safe harbor disclaimer on Page 1, let me hand it over to Pietro. Pietro, the floor is yours.
Thank you, Carola. Good afternoon, everyone. It's a great pleasure and an honor for me to be here to present our results and plans. I have a lot to say, shed some light of the company that worked for over the last 20 years, and I'm now convinced requires bold decisions to be taken to have a better future. We have identified a route for strong value creation. But before talking about it, let's cover '21 results first.
Let's go to Slide 5. 2021 was a very good year for Brazil on all fronts, and we had several achievements in Italy as well. In a nutshell, we had a strong boost in clients perception of our superior quality. The launch of our tiered offer has set a premium price reference in the market and confirm TIM's positioning as the quality leader with a segmented approach.
We go further down this route, premium price and segmentation are key for us. Digital service for business are a great opportunity for TIM, and this is really shown in the numbers, plus 23% year-over-year for ICT Services, 20% year-over-year for Cloud. We significantly increased our coverage, reaching now 94% of active lines with ultra broadband, and we grew FTTH coverage 36% with rollout at 3.8x greater than 2021. And we did it in a co-investment model, FiberCo, created last year by TIM and KKR, is first company in European Union to adopt the European Telecommunication Code, coinvestment scheme, fully approved by Italian authorities. We had good results on our current KPIs, fixed and by churn, CSI, bad debt and clients are trusting us more which translates in higher digital payment.
I'm particularly proud to report that TIM Brasil has achieved its guidance and successfully driven the company into a new phase, thanks to the positive outcomes of the 5G tender. It's creating strategy on fiber and the approved deal to acquire part of Oi's mobile business. In full year 2021, net debt after lease was down EUR 1 billion year-over-year for the total reduction of EUR 5.7 billion in the last 3 years. Next slide, please.
We have done well also in ESG. We met every single target and are seeing the company towards already signing an ambitious plan that has now been scrutinized to verify its compliance with the science-based target initiatives. On many fronts as eco-efficiency and employee engagement, we already topped the target we have set ourselves for 2023. Approximately 1/4 of our variable remuneration is based on ESG performance criteria. Next slide.
As you know very well, a few things played out differently versus initial expectation. First of all, football. Ambition were upbeat. However, a number of add win is lower than the whole initiative and transformed the opportunity in a drag for EBITDA. The key issue are concurrency, multiple viewers per subscription and greater piracy, which drastically reduced the size of the market. DAZN was meant to stop it, but they did not since we are renegotiating fees with them.
Secondly, the delays in the voucher plan caused a domino effect in the market, increasing competitive pressure and driving down expected lines growth and prices. We had higher costs to fuel digital companies and footfall, not fully compensated by higher revenues. And then last but not least, the new law provided for a change in the treatment of activation and handset costs that required the provision in 2021 and that will affect charges of the coming years. Next slide.
So if we look at our financials, group service revenue are on an improving impact in terms of year-over-year trend. Also thanks to increasing positive contribution from TIM Brasil. Fourth quarter year-over-year performance is affected by comparison with a very strong fourth quarter 2020 on nonregulated wholesale revenues.
Retail was meant to offset, but for the reason explained, it performed similarly to Q3. For the same reason, Q4 EBITDA was down year-over-year, namely the provision for risk on future installment collection due to the national law, football and digital company start-up costs, lower equipment sales with the related positive margins, labor and G&A for COVID rebound, energy and interconnection. Let's dig into the revenue dynamics in the next slide.
Looking at fixed KPIs. Fixed line almost stabilized despite fading help from vouchers starting from Q3. Ultra broadband growth was good in retail and very good in wholesale. We passed in December the 10 million ultra broadband lines mark. Churn was down 0.5 percentage points year-over-year. And this quarter again, we improved CSI and NPS year-over-year. Moving to next slide.
Fixed service revenue were down minus 3.7% year-over-year with the quarter-on-quarter swing and primarily due to international wholesale compared with a fourth quarter that in 2020 benefited from peak sales opportunity. That is why wholesale KPIs were very strong with whole net adds double quarter-over-quarter and well above copper losses, but revenue did not reflect it.
International wholesale with Sparkle did very well growing double digital service revenues, the fifth quarter of double-digit growth. Retail, despite all what I said, improved year-over-year performance attached versus Q3, thanks to ICT, including cloud, growing 21% year-over-year and to the stabilization of the customer base while consumer ARPU remains a drag. Equipment was significantly down year-over-year in Q4 as 2020 benefited from equipment sold with vouchers and strong sell in modems. Next slide.
The mobile market is showing signs of easing top irrational competition. The mobile number portability market has shrunk again. This was the coolest Q4 of the last 11 years. Thanks to TIM's rational behavior. And TIM was confirmed again as the best performer in the top 3 with the fourth operator decelerating its growth. TIM Human effects are now on an improving trajectory and churn record low. Next slide.
Mobile service revenue have not reflected improving KPIs yet and worsened 4 percentage points quarter-over-quarter, entirely due to lower roaming benefit in Q4, tough comparison in wholesale and partially repaid due to much higher proportion of out-of-bundle last year. ARPU Human improved progressively and spanning flat year-over-year, net of the drag from content service provider cleaning, an effect that we might have the possibility to revert in future years. Next slide.
CapEx in the quarter are down year-over-year for different seasons during the year. That was already explained in previous quarter. They are up on the full year for higher growth CapEx for cloud, FTTH and football in Italy and for preparation costs for Oi integration in Brazil. Net working capital is flat in Q4. Equity free cash flow was down mainly for lower EBITDA and for lower contribution from cash taxes that in 2020 had a benefit from the patent box. Next slide.
As I mentioned, in full year 2021, net debt after lease was down EUR 1 billion year-over-year, helped by KKR's purchase of a stake in FiberCop for EUR 1.8 billion. The net income in 2021 is materially down for 3 main reasons: goodwill impairment on domestic business unit as a consequence of rebasing of the performance on 2021 actuals and increased interest rate; second, the write-off of deferrable tax assets exceeded 25 years, the residual amount should be recognized in future years based on foreseeable net income; three, the provision for multimedia contracts on which we are projecting a negative margin going forward. The first 2 more material items are noncash, which means that they will not have an impact of our future cash flows. Next chart.
Let's turn page looking at TIM Brasil, and I'm happy to report that the passover to Alberto Griselli in the Brazilian team, a company in really good shape. TIM Brasil has been delivering consistently results and action. The value strategy on core focusing on ARPU more than on volume has paid off. The 5G tender outcome was perfectly in line with our expectation. We are pushing innovation and rolling out fiber infrastructure with effective partnerships.
Last but not least, we have obtained the green light from local authorities for the Oi deal that is dramatically stepping up the company's industrial and financial profile. We met all financial and ESG target set. TIM Brasil has already reported, so I won't go to Slide 18.
On Oi's integration, we are now shifting to the execution phase with a target to complete the migration within 1 year from now. This deal I'm really proud of. It's a deal that will improve the fundamentals of the company and health of the overall market. Brazil came late in the development of mobile versus Europe, and it was TIM that introduced GSM in the country. But I would like to relay that now the country is ahead of Europe in taking action after understanding that the mobile market with its massive need of investment does not work if it is overcrowded.
Next chart. Thanks to the good performances of TIM Brasil and to the Oi deal. We are in the position to raise our target in TIM Brasil to the double-digit growth we had anticipated for EBITDA. And we are reaching our guidance of revenue to double-digit CAGR as well. Again, the company has reported, so I will not go line by line. Let's talk about our plan.
Let me set the TIM first. Let me give you my view on the context and where we are. I believe -- I strongly believe that TIM has incredibly valuable asset, but also material challenges deriving from tough competition and regulatory constraints. The fixed is growing, but facing regulatory hurdles and competitive pressure. Mobile is progressively improving towards stabilization. Digital business are growing. However, they have a different profile versus core business, lower margin and they are less capital intensive. We suggest that this should be valued on different metrics than core telco and to have different capital allocation criteria.
While TIM market is benefiting from the shift from copper to fiber, but TIM now faces infrastructure competition and operates in a truly tough regulatory environment, plus CapEx is needed if you want to capture all the opportunities in the growing businesses and the future cash flows. In a nutshell, I strongly believe extraordinary actions are needed and we have identified them. Let me elaborate more on that.
Again, TIM is a great company with untapped value. It has the first telco brand in the country, the best infrastructure with the highest ultra broadband coverage and 5G speed and well-deserved leadership position in the Enterprise segment. It's the only convergent player that has it all from connectivity service to digital platform for consumers and B2B. Thanks to infrastructure and B2B positioning, TIM is the best suited player for the national recovery and resiliency plan. And it operates in a market that, in many respect, has reached the bottom. One example is fixed/mobile substitution that has been increasing for years. We finally saw a stop here. Technology improvement in pandemic made this trend reverse.
On the other side, TIM is facing very material challenges and you saw it in 2021 numbers. Our market is the most competitive and the most regulated in Europe. Prices have fallen 32% in the last 10 years and 18% in the last 5 years, like in no other European countries. We are the only operator in EU and maybe in the [ heart ] to have all the toughest regulation obligation, separation, replicability test or retail offering and wholesale regulation also on new generation network.
As I said, aside of the challenges, there are opportunities that need to be financed. Infra funds, private equity know it very well. You need to accelerate FTTH, 5G, cloud, digital company investment if you want to shorten the path to sustainable cash flow generation. It is now the time to pursue and finance new opportunities for the long run and such opportunities require CapEx at a level that is slightly up from previous years.
The good news is that the peak requirement would be in 2022 and that the medium- and long-term CapEx profile is very like for a few reasons. FTTH and 5G rollout will be finished, digital business are less capital intensive, decommissioning as we shop will end. So what is the way forward? Let's see in the next slide.
From our point of view, the way forward is to break the chains of value to the layer transforming the company from a vertical integrated player into separate entities with different industrial focus and financial metrics. A network company, we call it NetCo, including national and international wholesale business and assets. And a service company, ServCo, with the Enterprise and Consumer businesses, they are relevant asset jointly with TIM Brasil.
Why that? First, it makes sense from a business and strategic perspective. The 4 entities operate in different markets and have very different capital requirements. They need specific focus. Secondly, being separated paves way for valuable partnership and aggregation. Moreover, breaking vertical integration, putting comments in the position to obtain anything of the regulatory constraints that have been locking them so far, as I said, particularly in Italy. According to the European Telecommunications Code, wholesale-only operators are free from the cost orientation and retail would enjoy regulatory relief as well by splitting NetCo and ServCo will enable ServCo to compete on equal basis with other players. Lastly, it makes sense from a financial perspective, enabling better capital and debt allocation, clearer visibility on the specific asset and attractiveness for private money increasing eager for these type of assets. We expect that the process will take at least 12 to 18 months. Next chart.
The 4 entities have truly different souls and business perspective, 3 of them are in very good shape. The network is a source of cash flow enjoying a shift from copper to fiber that is helping the ARPU mix and will have operational cost and CapEx in the long run. Enterprise has very good growth opportunity, driven by cloud, IoT, cybersecurity and recovery plan.
TIM Brasil, we saw it, has delivered results and is about to accelerate. Consumer, which includes the small and medium business is, as said, fighting in a crowded and regulated market. We hope to see in Italy what's happened in Brazil soon. Let's see how we shape the perimeter of these entities in the next slide.
Perimeter. Brands and companies will follow their natural location and so customer. The mobile network data center service platform will be in service code -- that will also have its own backbone. All fixed and network assets will be in NetCo, including the entire access network, primary and secondary as well as central offices and backbone. During the phase of analysis, some small changes could happen. Sparkle with its assets will also be part of NetCo. Next slide.
As I said before, TIM is subject to the most stringent regulation in European and despite we have gone through painful and costly functional and legal separation, we didn't have regulatory relief, which we instead expect in case of structural separation. On the contrary, we are bound to have cost orientation for all our wholesale services. This is not happening in any other country. The structural separation will enable us not only to lift cost orientation, but also to eliminate replicability test in retail and could lead to an easy of constraint also in our decommissioning activity.
In terms of preliminary financial, what you should expect is higher EBITDA margin and larger CapEx in NetCo and vice versa in ServCo for the short term. Medium- and long-term CapEx are projected to fall for both unit as fiber and 5G rollout will be finished. Let me point out that TIM it is pretty unique in European context. Reporting the direct cost of the split of wholesale and retail in terms of the synergies is going to be very limited. This is because we have already incurred in the past all the costs of introducing equivalence of input and equivalence of output. Plus, we have already separated FiberCo.
Let's now look at the evolution and plan for each single market in the next slide. In the wholesale market, we see growth for fixed accesses supported by FTTH. Competition from fiber overbuild and opportunities coming from the recovery plan. In this market, context we are aiming at protecting our customer base and further pushing towards fiber, pursuing the co-investment model. And we'll open the wholesale market as a channel for our factories, a source of incremental business for both. Sparkle will operate in a context of huge data growth that increases the demand for international connectivity. It will also seek selective expansion in growing geographical areas and other value-generating initiatives.
Moving to Enterprise. The Enterprise market is growing, driven by increasing customer demand for ICT services. In this context, our strategy is to further strengthen our connectivity and ICT solution evolving towards an integrated unit that will accelerate commercial traction. We also have to improve our marginality. So we'll develop more in-house solution and in-source parts of the value chain. We are at full speed on our commitment to participate to our relevant recovery plan initiatives, and we have dedicated teams to capture these opportunities. This is a healthy unit and we project EBITDA to double by 2030 and revenue to grow 80% versus the starting point that is very close to EUR 3 billion. We expect it to remain almost stable on CapEx year.
Importantly, TIM's Enterprise is expected to grow faster than the rest of the market because of its unique selling proposition. It is the only player in our market that can offer a wide end-to-end portfolio of services that include ICT and advanced connectivity, simplicity, security and convenience in one single shot. In the future, we might also replicate this model abroad. Next slide.
As you know, a very important project that leverage on this capability is National Strategic Hub, the cloud for the public administration financed by the Recovery Fund. Our offer was selected as the reference in the tender, and we also have the right to match offer that other might put forward, a good situation indeed. I will not say anything more than this because [indiscernible]. Next slide.
Now the tough one, the Consumer market. What are we going to do, given the marked context I already described before? We need to revamp our premium positioning from a brand perspective, leveraging on a high-tech made in Italy concept and handset financing through TIMFin. We received commercial operation efforts from acquisition to upselling and customer base retention caring. On this point, we have developed in-house an effective data market automation system that enable us to target micro segments with lacet being direct marketing action. We have been experiencing redemption rate 3 to 10x higher than before and will scale up this system. We will push further on convergence and we'll make sure to leverage the voucher program that is planned despite the constraints that have been introduced.
On content, you saw we had issues. My goal -- our goal is to improve the marginality by [ NMEs ] in data, commercial, legal, we are considering all options. We also need to rethink our business model in a way that makes it sustainable and productive to a more over-the-top approach, less dependent on set-top boxes.
In the small and medium business market, it's the only player that is offering traditional and advanced connectivity solutions as well as ICT and digital products and services. This is the reason why business customers should choose us and will push further on this concept to maintain premium positioning. We have to protect our customer base using the same tools that I described for the Consumer. We will improve caring and customer experience, and we aim to benefit from the voucher scheme also for a technology upgrade of the customer base. Next slide.
Looking at OpEx, we have to manage the change of mix and revenues. The new mix brings higher growth, both for revenues and for revenue-driven costs, namely those for ICT, digital business and content. These businesses have the benefit of lower CapEx, but carry lower margins. For content, as I said, we'll be reviewing our agreement and strategy with a view of avoiding negative marginality and possibly creating value.
For the rest, to offset this trend, we have defined a proper transformation plan with a large set of initiatives aimed at drastically improving operating efficiency, including also action on revenue-driven costs as well as on indirect labor costs. Since I arrived, I have identified cuts for 15% of the addressable cost base, but the aim is to cut them by 20%, which is not in the plan yet. It is also important to note that beyond 2025, with the end of some content contract, costs are projected to fall significantly. Our long-term plan envisages margin expansion of 4 percentage points from 2025 to the end of the decade on growing revenues.
Last but not least, on ESG, our plan envisages actions and targets on a wider set of KPIs. Let me mention at least a couple of them. We are targeting net-zero for 2040, and we are now including Scope 3 in our initial reduction target. I'm fully committed to drive the company in this journey and will report the progress along the way.
Before my final remarks, let me provide some additional color on what we factored in our plan for 2022. As I already hinted, we have a few headwinds. The impact of the new law on Consumer contract duration, the regulated wholesale price update, stricter than expected rules on voucher and we've factored some impact from the entrance of a new player in the market.
On the other side, we assume we'll benefit from some items that we had in 2021. The overperformance in wholesale where we had the peak in one-off sales, the positive effect on commissioning of the revise customer lifetime, consequence of a strong churn improvement versus the past, subsidies for public trading. On the net debt front, as you all know, 2022 will have a number of extraordinary payments for a total of EUR 3.7 billion, including spectrum in Italy and Brazil, Oi acquisition and the substitute tax, too, and franchise goodwill.
I understand it's a lot to take in 1 page. However, there is also some good news as we see a binding offer from Ardian for INWIT to buy 41% of Daphne 3 for EUR 1.3 billion. So in case we'll accept it. It will remain with 10%, including some governance privilege. Plus, we are reading in the news that the concurrency should come to an end from the next football season. Both elements, being last-minute news, are not yet factored in the plan.
So to conclude, we are leading an unprecedented period for TIM, and it's time to take bold actions. I'm empowered by the Board to develop the execution plan of the group organization. We'll also have Capital Market Day where all the details of the new plan will be disclosed. Before then, we are, of course, working on a continuity plan, which means based on current organizational structure that envisages group revenue to grow low single digit in the planned period, a flat EBITDA and CapEx line that is already in the chart.
For 2022, we are taking the heat that I described on revenues, EBITDA and net debt. We intend to reinstate dividend as soon as the reorganization envisaged will have brought the expected results.
With that, let me open the Q&A session.
Operator, we are ready for the Q&A session. Thank you.
[Operator Instructions] The first question comes from Mr. David Wright of Bank of America.
I guess just a couple for me. One is a little more technical. But just first of all, on the NetCo that you've described, could you give us any indications of how you could look to bring that -- evolve that asset, whether it would be like a BT open reach or whether you could look to actually carve-out of the TI Group? And there have been some reports of an MOU with Open Fiber that feels like the next progressive step. Can you give us any indication on discussions you may be having?
And then my second question, a little more technical on the saver shared dividend, which I understand carries forward in the event of not being paid. If it's not paid the following year and there is reserves available to pay, does it carry preference the roll forward, say, the dividend over the current dividend? Just trying to understand some of those dynamics.
David, thanks. Related to the first question that is on NetCo, we have in mind a carve-out and not the model of BT. What -- and I'll just elaborate more on that. What we are thinking is that separate completing the network could allow us to have advantages on both sides. The first one, regulatory release on the network side and so wholesale prices and on the retail one. I continue to remember that sometimes we forget that we have lost, during the year, all the theoretical advantages coming from a vertical integration. We are the most regulated country. We still have a lot of orders to compete on the retail side, face-to-face with the other player.
So a complete separation that carve-out could allow to have better competition placing both on the retail side and on the wholesale side. In the meantime, what we are expecting is that in any case, building a carve-out could allow us to have optionality towards a possible industrial partnership. We cannot tie that the potential partnership from industrial point of view could be CDP with Open Fiber or to look for a further financial partner that could allow us to distress the level of CapEx that are requested to proceed and move on, on all the development of FTTH. The result that we are facing in our number are related to further that in the next 3 year, we'll face a wave of CapEx that is particularly high. But if we look in the mid- and long term, they will be reduced because once we'll cover all the areas that are planned, we will not have the level of expenditure related to the FTTH.
Let's remember also to clarify what we expect is that in the mid- and long run, we can start to have also benefit coming from the decommissioning of the old technology and the fixed network. And in the case of a structural separation, the commissioning process could be also facilitated by all the different steps.
Related to the savings share, I need Adrian to answer.
Regarding the dividends for the savings shares, it's not a discretionary decision. It's a technical matter. Today, even if we have reserves, these reserves are blocked and if we pay these dividends to the savings shares, we will need to pay taxes on those dividends. So that's the matter -- the reason why for us technically today, it's not possible. Going directly to your question, if these dividends are cumulative? Yes, there are for 2 years. So if in the future, we will come back with or we have additional reserves in order to give dividend, we will pay it definitely.
Okay. And just to double check. So Pietro, can you comment, are there any discussions with Open Fiber underway right now? And I guess just on the savings shares, if it's not paid this year and it can be paid next year, will this year get priority against the reserves versus next year? I hope I'm being clear with that.
David, related to the first question, it's clear that we are looking around and we started to have some discussion -- initial discussion with possible partner, both on the industrial side that on the, let me say, financial side. Then it's clear that it's something that we are -- we must go more in depth in the following weeks. But what is important is that -- and perhaps I can anticipate it also other questions that could arise during the call.
Compared to the past, we stated that we are really now to lose the vertical integration. This is something that during the last 8 years, because we started in 2013 to start to discuss about the network separation, was a table for our company. Now it's the first time that we put on the table that we are ready to lose the vertical integration. Adrian?
Yes. David, regarding if -- which year has priority, I think it's indifferent. If we come back to a positive net income and we'll start having reserves, we'll be available to pay up to the reserves that we have. And this considering the level of each year.
Thank you, David. And next question, please.
The next question comes from Mathieu Robilliard of Barclays.
If I can follow up on some of the previous questions on NetCo specifically. So when we talk about carving out NetCo, I guess, the structure would then be a holding company, which is the listed company with 2 separate entities. And my question would be, would you be ready in that scenario? I think you alluded to partners to join you in the wholesale NetCo business. But are you willing or are you -- or would you accept to lose the majority in that NetCo? That would be my first question.
And then I saw that you are raising CapEx, obviously, investing in fiber, which is a great opportunity. But when you think about a potential combination with another partner, which, according to what you said today, in any case, wouldn't take place between maybe before 12 or 18 months. Isn't that step-up in CapEx something that reduces potential synergies if you were to merge with someone and maybe defeats a lot of the benefits of doing that merger? So that's -- sorry, that's the first question.
The second one was on some of the write-down you did, If I read correctly in the slides, you talked about something related to media. I suspect this has to do with the deal with DAZN and it seems that you're assuming that, that business is going to be negative or have a negative impact for the future? Or is that a reflection of the change of view about the past? And then I guess the question is, are you assuming when you write down the media, but you are not renegotiating for now the deal with DAZN, are you being prudent? And could that change? Hopefully, that's a clear question.
Very clear, Mathieu. Very clear. So as I stated at the beginning, we are ready to lose the majority of NetCo, then the possible scenario that could allow us to reach that goal could be different. And we spent the last 3 months to go through the different situations that are mainly related to all the partner with which we will proceed, we can have the merge, we can have a contribution. So based on the different situation, can change the way to proceed.
Keep in mind that, in any case, as we stated, we can also keep a minority stake, but in any case, to be sure to have the -- to lose the vertical integration should be a stake that will not allow us to have veto power to contribute in discussion or to have the possibility to interfere with that. Keep in mind that in this NetCo, we should put all the wholesale business. So the ServCo will be mainly retail.
Related then to the -- and then you were asking something related to FiberCo combination, if I'm not wrong. The step-up in CapEx about -- yes, the possible synergy that are coming related to that. If we proceed with an industrial partner, we have to keep in mind that we have 3 different kind of synergies. The first one is CapEx avoidance. And for sure, if we should proceed with CDP and Open Fiber, the time that it will be spent through the eventual authorization by the antitrust, call it be, at European level or at national level could not allow to exploit all the CapEx avoidance.
But if you look at the number, both company, looking at the public number, are thinking to continue to invest until 2026, 2027. So this is not the main issue. But again, we could lose a part of synergies arising from CapEx avoidance. But then we have 2 further level of synergies. The first one, I don't have to explain to you as this business is a business where it's really important the level. Let me call that saturation, also if it is not saturation.
If we put the customer all on one network, the return on investment is, for sure, higher. If you put all the customers in one network, also the speed to reach the level of saturation is faster. Both of them are 2 elements that could allow to have further synergy, let's call it in this way, coming from the better return on investment.
Last but not least, there's a matter of speed and also concentration of the effort. Today, this is something that is well known in the Italian market, we are facing difficulties because while we build at the same time in the same area, we are having some issue with the operational activity to look for a company that are able to build this network. So all in all, for sure, based on the time that will be needed if we will proceed with an industrial partner, the synergy that we will lose will be the part of period that is necessary for the antitrust authorization, while the other synergies will continue to exist.
Related to the second question that is on DAZN. Yes, what's happened is that we put in 2021, the write-off of the negative impact of the DAZN. We didn't include any kind of further improvement that can arise for -- from a renegotiation or if we will do something different. And what will happen is that in the next 3 years, we will work on the media business that we have managed until today because we are not completely satisfied by the way in which we are implementing this strategy. It's clear that they are not contributing in terms of EBITDA and value as we were imagining. So we'll do all we can do to try to be back to have marginality also from this line of business.
Thank you, Mathieu. So next question, please.
Next question comes from Sam McHugh of Exane BNP Paribas.
Two questions, if I can. Just first on the fiber build. I think your plan at the moment gets you to 60% coverage and, obviously, beyond that, there's Open Fiber. I guess can you give us first an indication of how your customer base, retail and wholesale, split between the 60% where you will have coverage and then the 40% where you don't have a plan to roll out, number one.
And then the second question is if I look at your balance sheet, you're starting to look very stretched. There have been some reports in the press about KKR having a put option on the FiberCop stakes. Can you confirm or deny whether that is true or not?
So about the first question, that is related about -- let me repeat, if I understood well your question. You want to know about the coverage of the country, our distribution between our customer and the customer of the competition. Is it right? On the FTTH, we are talking about distribution between black area and white area?
Yes. It's more I'm thinking if you can't do an Open Fiber deal, how much of your customer base sits in areas where you won't have the network and they would have a network? Just trying to size the downside risk if you stop building at 60% of the country.
Yes, it's not really easy to do this comparison, but let's work in this way. Let's remember that the country is divided by 3, black, gray and white. On the white area, Open Fiber is the concession. So there will be the FTTH network. They will be the only one that will be the FTTH network. But in this area, we have already developed our FTTC network, where we have more than 60%, 70% of our customer with ultra broadband. And in this area, 50% of our network is able to achieve something above 50% -- 50 megabits per second.
Then we have the gray area on which none of the company for what they know, public information, have started to build in this area. And in this area we have our FTTC coverage where we are continuing to perform. Let's remember that we completed and increased the coverage with FTTC from 85% up to 90% during 2021. And then there are the black area in which, again, I don't have -- I can talk only based on the public information I'm able to gather, the Open Fiber is still high of TIM in terms of FTTH coverage.
Then the second question was related to FiberCo deal. You were asking if we have any specific put option or other element?
Correct. Yes. So just trying to think about the balance sheet and the risk that we see another big cash outflow if KKR were to exercise its options on that FiberCop deal.
It's clear that the contract has happened, in any kind of this contract some rights in favor of KKR. But at this stage, also for a confidentiality issue, we cannot disclose. So again, this is something that is normal. But to be clear, it doesn't put us in difficulties if we were to proceed with the carve-out.
Thank you, Sam. Next question, please.
The next question comes from Jerry Dellis of Jefferies.
First question might be a follow-up from the last one. I was just interested in whether you would imagine that FiberCop would continue to exist as an entity within NetCo? And what right KKR has about the way in which FiberCop might be folded into NetCo?
And then secondly, a follow-up on the question regarding the Savers dividend, if I may. If you are in a positive net profit position next year and even if you don't have positive distributable reserves, would you pay the 2021 Savers dividend in preference over the 2022 dividend?
So about the first question that -- where you're asking more details about our contract with FiberCo. again, after any kind of this deal, they have some rights. They have a lookup for 5 years. But -- and it's clear that if we'll proceed with any kind of activity, we will involve and discuss with them. Also, if I think that, as I was telling you before, the rights that they have are usual traditional right.
Let's remember, in any case, when we discuss about the 2 possible different scenarios, the so-called industrial one and the financial one, one we talk about the industrial one, let's remember that independently from everything, there are also some golden power rules that put and give more rights about the possibility to merge compared with the financial one.
For the second question, Adrian?
Yes. On the preferred -- on the savings, clearly, if we have positive net income in the future, of course, this will be preferred shares in order to renew dividends. obviously, starting with the ones that was due to pay in 2022. But yes, definitely, if there are net -- positive net income, we will restart to pay dividends on the preferred shares.
Could I just ask what was the distributable reserves' position at the end of 2021, please?
At the end of 2021, so before the Shareholders Meeting, the total reserves are EUR 11 billion before the Shareholders Meeting. After the Shareholders Meeting, will be EUR 5 billion.
Sorry, Carola. Also to be clear, for some questions, it's clear that we are not hiding anything, but you can imagine that we are in a situation for which the next 3 months will be very important for our company in terms of negotiation. On the table, we have several opportunities that we have to try to get. So some information can put someone in a better condition to negotiate. This is the reason for which on some information, I will try to not give too many details.
Thank you, Jerry. Next question, please.
The next question comes from Mr. Luigi Minerva of HSBC.
Thanks for taking my 2 questions. Now the first one is on Slide 29. Pietro, I know it's about the rationale for the structural separation. Because if I look at that slide, it's very clear that you have countries like Spain, France, Germany, where regulatory benefits are there even in the absence of structural separation. So it is possible within the European regulatory framework to have a supportive regulation even when the incumbent remains vertically integrated. So what is special in the case of TI that you require a structural separation in order to win regulatory relief?
And the second question is just a clarification on the INWIT stake. I just found the press release not completely clear. So I just wanted to clarify if the Ardian offer is to buy TIM completely out of INWIT?
Luigi, thank you. Related to the situation, keep in mind that this is something that we are discussing since 2013. What is happening? And when I tell the story, I understood that I'm becoming old. Because I started in 2008 when we started with the equivalence of output. Then we moved in 2013, 2014 with the equivalence of input. Then we started with the fiber and we were obliged to be concentrated on the fiber. Then we created FiberCop and we created FiberCop as a separate company.
In the meantime, we started to change all our system. So what it means is that theoretically today, if it was in the shoes of other telco player around Europe, before to go towards the loss of the vertical integration, I should think several times because perhaps part of them continue to have equivalence of output and they didn't spend money to put in place something as we did. They continue to have equivalence of input. And they didn't spend the money that we spent to do that. They continue sometimes also to not be, as in our case, obliged to do a comparison for the launch of new offer based on the comparison with some other one.
Let's imagine this way. We are -- if we have the network -- the separation of the network theoretically, I should be the most efficient player because they've the highest amount of customer. I should buy from a wholesaler. I'm not discussing about -- to you about wholesale price or volume discount, but it should be the most efficient. I don't have to explain to you, Luigi, that this is a business of economies of scale. Today, when I have to compare and build my retail offer, I will compare not with the most efficient competitor with less efficient. So which are the advantages to continue to be like that?
Perhaps you don't know, but in Milan, our market share is 23%. I'm not the first player. Why I have to compete without the possibility to compete exactly as other players did? Let's remember, for example, that one of the main competitor in Milan was able to subsidize with content, the connectivity. We're not allowed to do that. So again, I understand if you think from another telco player point of view. But all the theoretical advantages were lost during the time. The regulation is like that.
So one of the last cases is the soccer bundle. We were entering in the business of DAZN and sport because we were thinking to use bundle, and it was forbidden. So I will put in a different way the question. You know better than me the market. Can you tell me, not by claim, which are the advantages of the vertical integration? This is the question that we ask to some analysts in the one-to-one. And if we go out from claim, I didn't receive specific element that justify something like that. And I spent the last 3 months explaining that also to our Board of Directors because they are doing their job. They are challenging us as a management team not to buy something as a black box. But explain why that?
So again, also when we talk about synergies and the synergies, we have also adviser of the special -- of the committee ad-hoc that are expert on this matter. And they told there are these synergies from the IT side. Then I explained them that we already developed everything during this year. So why stay like that? Which are the advantages as a vertically integrated player? Sorry if I was provocative, Luigi, but I did it just to make more clear my statement. But again, if there's something that I didn't explain well, please I'm here to come back to you.
And about INWIT, Adrian?
Yes. Luigi, regarding your -- the question about the offer coming from Ardian, this offer is for big portion of the stake that we have still on Daphne 3 that is one of the controlling companies of INWIT. Even though after the -- if we accept this software, we will remain with a participation in Daphne and also with some governance in with the operational company. So the offer is not for the stake on INWIT, but the stake we have on Daphne 3.
And can I ask what is the stake in Daphne 3? Can we quantify?
Yes, it's 41%, and we will remain with an additional 10% of Daphne 3.
Thank you, Luigi. So our next question, please.
The next question comes from Mr. Domenico Ghilotti of Equita.
I have a couple of questions focusing on the 2022 outlook, in particular, for the domestic business. So if I'm not wrong, you are projecting something like mid-single-digit decline in sales and mid- to high-teens decline in EBITDA with costs that are actually up. So could you give us some more color in understanding the bridge on why the domestic business despite the KPI that you were commenting before that were not so bad is so under pressure in 2022?
And in terms of second question still on 2022 guidance, I presume that we should expect some kind of negative equity free cash flow and I reached something like EUR 20 billion of debt after leases even including the INWIT disposals. I wanted to check if this calculation are reasonable.
Yes. Domenico, let's start from the domestic for 2022, and let's try to bridge the relationship between 2021 and 2022. What is important is that -- and let's discuss about EBITDA, first of all, and then we can move also to the revenue. About EBITDA, what's happened is that on the domestic level of the EUR 4.358 billion in terms of EBITDA after lease, we have part of them that are related on non-repeatable activity that are related, as we mentioned, also on some wholesale activity that it's very difficult to foresee that can be or we can have further opportunities like that during 2022.
Then if you get the exit speed of the fourth -- sorry, there's another impact that is related to the fact that the 24 or the 26th of December changed also the code -- the communication code that oblige us to change the way in which we approach the business of the ultra broadband. I don't remember if you have in mind how it works with the front load of the revenues through the activation one shot price.
And then if you get in the last quarter, the fourth quarter exit speed in terms of customer base and you multiply it by 4, you mainly arrive to the number that we put in our plan. It means that we have some challenges because we are taking the commitment that we will stay as we are for the organic business because, again, if you reduce by the headwind, as we call that in the Chart 40 that are not repeatable. And then you get the fourth quarter and you multiply it by 4, it means that we have to work with Andrea and the rest of the team to keep the level of EBITDA also working on the cost side where we are moving towards an important transformation project for cost cutting to keep that. I don't know if I was clear about the number. But if you need more details, there's no problem. There was also a second question.
Yes, on the free cash flow and the level of debt.
Yes. Considering what we've been saying into different answer than what you have in the presentation, you know that we have confluence of factors -- of negative factors, I won't be negative because you'll see that some of them are really positive. On 2022, we will have the payment of the licenses here in Italy. We will have the payment of the 5G frequencies in Brazil. We'll have probably the biggest effect that is the payment of the participation in Oi in Brazil. And we will have additional cash effects such as the deferred tax and the payment on DAZN. So you can imagine that it's difficult to assume that the evolution of the net financial position won't be negative then.
In terms of equity free cash flow, as we mentioned before, we are not guiding it because there are a lot of moving parts. We are trying to understand better some of these effects. Of course, we have our numbers internally, but we're trying to understand if we can improve them with some actions as, for example, the INWIT deal that we were discussing before. So again, in 2022, we'll have a confluence of different and several factors all lying on the negative side in terms of financials, but probably on the positive side in terms of operation.
Domenico, and if I missed because I don't like to seeing some -- to see I'm polite. And what is important that none of the team that is here in the room with me is happy of this number, to be clear. We work on a realistic plan, and we will do whatever we can do to improve this number. But we thought that be realistic and try to gain the trust of the financial market was much more important than sell a dream that can then become a nightmare. So we see room for possible upside.
As Adrian mentioned, we will work on that. We will update you on a quarterly basis on the traditional business or better on the day-by-day activity, while we will work to arrive by the date of the half result with our plan that could try to better valorize the asset of this company that are really good. And I'm quite optimistic about the possibility to improve this number.
Okay. And you confirmed that the recovery -- the opportunity of the recovery fund has not been factored in, including the strategic falls or strategic up?
Yes. Thank you for your question.
Sorry, yes, clearly, there are -- these additional leases are not factorized, example INWIT.
Okay.
Thank you, Domenico. So we now have time for the last question. So operator, last question, please.
The last question comes from Mr. Keval Khiroya of Deutsche Bank.
I've got 2 questions. So the first one was I appreciate in Q4, there's a lot happening, but the retail broadband adds were negative. How are you thinking about how the subscriber momentum evolves in 2022?
And then secondly, I appreciate this is more a question for your Board, but you highlighted the interest of private money on infrastructure. But given the extent of turnaround and a short-term horizon of public markets, do you think it's right for TI to be a listed company at all in current times?
So about the net adds on the ultra broadband, what we are thinking to do is during 2022 to try to be a player that will try to freeze the market and reduce the competition on price. We are working with Andrea in the possibility to segment in a better way our offer, not only on ultra broadband, but also on the mobile because sometimes in Italy, the prices are so low that we have room to do and giving more value to increase the ARPU.
So from a certain point of view, we think that makes our sense to fight to increase the quantities diluting the ARPU. It doesn't mean that we will not work to improve our net adds. But you have to start to think that we are the only country where FTTH has the same price of FTTC. And this is a way in which you are destroying value. This is one of the only countries where sometimes the main player created a second brand to compete with the new entrants, either in the case, reducing the price. We have to work in terms of create offer to increase the quality of the service and to improve the ARPU.
If you look at our price, we think that we have margin not for a so-called price up, but to create further offer that could allow to increase the level of ARPU adding service on what we sell as today. Then we have to find also a different way to accelerate also the migration towards the ultra broadband for PSTN and traditional ADSL. What we did until today is to get the low hanging fruit. Why that? Because are the customers that were easy to do.
Now, for example, also when we have the possibility to use the best technology available offer, the issues to convince customer, to open our -- their door and to allow us to migrate them at the same price towards the ultra broadband. This is something that we will work on because customer experience and digitalization are also 2 important elements we have to look to. Can you repeat then the second question because I was unable to catch? Or just a second...
Does it make sense to have to be listed?
Yes. The point related to TIM to be the listed, I think that there are some -- there are different ways to reach the same goal again. And this is something that I'll take some minutes to explain which is our view. If you look at TIM as is today, at the same time, we are managing 4 business models that are completely different. We have Brazil that is, let me say that in South Asia, a wonderful country is happening exactly the contrary of what happened in Europe. We had an auction for the 5G that was clever. They put the value of the auction in network building, so you don't have a new job front. The market is going from 5 to 3 players, exactly the contrary of what happened in Europe. We brought the fourth player and will create debt for the next 2 years.
But by the end of 2024, they will be back to leverage 1 and then it's a market with the growth. So what we cannot do is block Brazil from growth because it will be a growth engine for our group in the mid or long term.
Then we have the Enterprise business. And I'll tell you a story. When I was younger at the beginning of 2000, Consumer was the best word. We were discussing about a huge opportunity coming from content, financial services, technology evolution and it was a story that happened in the last 20 years. Now the Consumer is a segment where the competition put the price at the lowest level, and it's difficult to add services to improve. So the Consumer is a story of restructuring the company and repositioning the offer.
In the Enterprise segment, we have the opportunity for the next 6 or 8 years to follow the wave of the modernization of the public administration and of all large corporations. We are discussing about cloudification, cybersecurity, IoT huge opportunity in a market and in a segment where the average length of a contract is above 3 years. And if you apply the Pareto load to our revenues, 80% of our revenues are coming from customer with contract above 5 years. What's happened that we have to invest in the cloud, we have to invest on some contracts. And so we have to find a way to finance this kind of activity.
Last but not least, you have the network. Once you look at the network, it asks for a huge amount of CapEx because you have to build the network today. And what looks strange is that if this company was in utilities, the market could ask us why you're not putting much CapEx to build this infrastructure? Because in the mid or long term, it will be a cash cow, but being a telco player is more difficult.
But to come to your question, perhaps sometimes it's better to keep private the network because the private allowed to have access to an interest rate much better. In the short term, less constraints in terms of rating and financial issue. So if we want to discuss in theory, if it is better to take private your group or to take private transform private some piece of the company, perhaps you have to look at the network as the piece on which a tech private could allow to exploit better the efficiency and the opportunity that will come.
Again, sorry if I took the last minute to do a long story short, but I think that it will allow. And again, we -- I can speak in the name of the management team that is here on this table. We will work in the next week and month because we would like to improve this number. We are not happy about that. We think that we have the opportunity to do something better of what we have presented. But I don't want to miss the opportunity to ask you to be ready for our Investor Day that we'll have by the presentation of the second half -- of the first half, sorry. I don't want to try to buy further time. And I'm sure that we'll show you a condition and a situation that is much better than the one that we have today. Thank you.
Thank you very much from my side as well and from the whole team. We are available as usual for your questions in the afternoon and in the following days. Thank you. Bye.
Ladies and gentlemen, the conference is over. Thank you for calling.