Iliad's Strategic Shift and the Future of Italian Telecom M&A

The Italian telecommunications market is at a crossroads. For years, it has been a battleground of four major players—TIM, Vodafone, WindTre, and Iliad—competing in a fiercely price-driven environment that has eroded profit margins. Iliad, the French disruptor that entered Italy in 2017, has now pivoted toward a strategy of domestic consolidation, signaling a shift from aggressive market-share gains to structural transformation. This pivot, driven by regulatory pressures, financial realities, and competitive dynamics, raises critical questions for investors: Can Iliad's push for M&A reshape the Italian telecom landscape? And what are the risks and rewards for shareholders in a sector where consolidation is both inevitable and fraught with uncertainty?

The M&A Chessboard: Iliad's Pursuit of TIM

Iliad's most high-profile move in 2025 has been its renewed interest in merging with Telecom Italia (TIM), the country's largest telecom operator. While the company previously attempted to acquire Vodafone Italia in 2024 (only to see it sold to Swisscom for €8 billion), its focus has now shifted to TIM. A merger would create a dominant entity controlling 41% of the mobile market and 40% of fixed broadband, effectively reducing competition from four to three players. However, the path is anything but smooth.

The Italian government, which holds a 10% stake in TIM and wields “golden power” to block foreign takeovers of critical infrastructure, remains a wildcard. While Iliad's CEO, Thomas Reynaud, has publicly stated that “consolidation prospects with TIM are now behind us,” recent reports suggest the company has once again approached the government to explore the possibility. This ambiguity reflects the delicate balance Iliad must strike: appealing to regulators as a “responsible” consolidator while navigating antitrust concerns and political sensitivities.

For investors, the key question is whether Iliad can secure regulatory approval for a deal that would require divesting assets (e.g., spectrum licenses) to satisfy competition authorities. A successful merger would likely boost Iliad's EBITDA margins and reduce price competition, but failure could leave the company stranded in a fragmented market with diminishing returns.

Partnerships as a Stopgap: Infrastructure and Network Densification

While M&A remains aspirational, Iliad has also pursued partnerships to strengthen its infrastructure. A notable example is its Build-to-Suit (BTS) agreement with Phoenix Tower International (PTI) to deploy 1,900 new towers in Italy. This collaboration accelerates 5G rollout and supports Iliad's subscriber growth, which hit 12.24 million in Q1 2025. By outsourcing tower infrastructure, Iliad reduces capital expenditures while maintaining control over active network equipment—a financially prudent strategy in a sector where CAPEX is a major drag on profitability.

Financially, Iliad's Italian operations have been a bright spot. Despite a 41 million euro tax hike in France, the company's cost discipline and revenue growth have driven a 24.4% year-on-year increase in EBITDAal in Q1 2025. This resilience underscores Iliad's ability to monetize its customer base even in a low-margin environment. However, the broader sector's profitability remains under pressure. With four operators competing for market share, pricing wars are inevitable, and without consolidation, Iliad's margins could stagnate.

Competitive Dynamics: TIM, Vodafone, and the Shadow of CVC

TIM and Vodafone Italia are not passive players. TIM's CEO, Pietro Labriola, has acknowledged Iliad and Poste Italiane as potential partners but has not committed to a merger. Meanwhile, Vodafone Italia—now owned by Swisscom—has shifted focus to its fixed-line division, which Iliad is reportedly eyeing. This could create a niche opportunity for Iliad to expand its broadband footprint without directly challenging TIM.

Yet the most intriguing development is the involvement of CVC Capital Partners, a private equity firm with a long-standing interest in TIM. CVC has approached the Italian government to acquire Vivendi's 24% stake in TIM, a move that could complicate Iliad's consolidation plans. If CVC succeeds, it may prioritize asset sales or spin-offs over a merger with Iliad, further fragmenting the market.

Regulatory and Strategic Risks

The Italian telecom sector is a regulatory minefield. The government's “golden power” authority means any foreign acquisition of TIM must align with national interest—a nebulous standard that could delay or derail deals. Additionally, antitrust regulators are likely to demand asset divestitures, which could dilute the value of a TIM-Iliad merger. For investors, these uncertainties mean that Iliad's M&A ambitions are far from guaranteed.

Investment Implications: A High-Risk, High-Reward Play

For long-term investors, Iliad's pivot to consolidation presents both opportunities and risks. A successful TIM merger would create a telecom giant with pricing power and scale, potentially boosting Iliad's stock price and EBITDA margins. However, the regulatory and competitive hurdles are significant. If consolidation fails, Iliad may be forced to compete in a saturated market with thin margins, limiting growth potential.

In the short term, Iliad's infrastructure partnerships and subscriber growth provide a buffer. The company's EBITDAal growth in Italy is a positive sign, and its cost discipline has insulated it from some of the sector's broader challenges. However, investors should remain cautious. The Italian market is a test case for European telecom consolidation, and Iliad's success—or failure—could set a precedent for other markets.

Conclusion: Navigating the Uncertain Path Forward

Iliad's strategic shift reflects a broader industry trend: the need for consolidation to survive in a low-margin, hyper-competitive environment. While the company's financials and infrastructure partnerships are strong, the regulatory and competitive landscape in Italy remains unpredictable. For investors, the key is to balance optimism about Iliad's potential with a realistic assessment of the risks. If the company can navigate the political and regulatory hurdles, it may emerge as a dominant player in Italian telecom. But if it falters, the rewards will remain elusive.

In the end, Iliad's story is one of ambition and adaptation—a reminder that in telecom, as in life, the only certainty is change.