Explainer | What's at stake in Telecom Italia grid deal?

US fund KKR and the Italian Treasury have teamed up to buy Telecom Italia's (TIM) landline grid, in a deal that could ultimately be worth about 23 billion euros ($24.38 billion).

The original deadline for a binding bid was the end of September but that is set to be pushed back to Oct.15 at KKR's request.

Following explains the significance of the potential deal:

What is up for grabs ?

TIM is selling NetCo, a venture comprising both TIM's domestic fixed-access network and international wholesale telecoms operator Sparkle.

TIM's landline network covers nearly 89% of the country's households and its fibre cable stretches over 23 million kilometres across the country.

Sparkle's cable network stretches over 600,000 km and it has a direct presence in 32 countries.

Why is TIM selling?

Crippled by 26 billion euros in net debt as well as cash burn, TIM has resorted to hiving off its main asset, in a move that would be a first in a major European country among former phone monopolies.

The sale is the main plank in CEO Pietro Labriola's plan to radically reshape the company whose earnings have been shrinking for years due to stiff competition on its home turf. Many such initiatives have in the past failed to bear fruit.

TIM's network is Italy's main telecommunications infrastructure and governments have been looking for years to ensure investments are carried out to upgrade it to fast fibre optics from copper.

Who are the main player?

French media group Vivendi is the largest individual shareholder, with a stake of almost 24 per cent. The company has been arguing that the KKR bid undervalues the grid and would put at risk the sustainability of the remaining services business.

Vivendi, which first invested in TIM in 2015, has been repeatedly forced to write down the value of its holding and faces a 75 per cent theoretical loss on its initial 4 billion euro investment.

State lender CDP is the second-largest investor, with a stake of almost 10 per cent.

Prime Minister Giorgia Meloni's government is also involved as it regards telecoms infrastructure as a strategic national asset. The Treasury plans to take a stake of 15-20% in the NetCo business being sold.

Trade unions are also keen to protect the jobs of more than 40,000 TIM workers in Italy.

What is the state of Italy's telecoms market?

Beyond TIM's grid, a second major network is being rolled out by Open Fiber, a company controlled by CDP and Australian investment group Macquarie.

There had long been talks of trying to combine TIM's network with Open Fiber but competition concerns have hampered such a deal so far. In Italy, the share of households having access to full fibre-optic connectivity is 44%, well below the EU average of 70%, according to the latest EU annual report on digitalisation.

What happens next?

Once a binding bid is submitted, getting the backing of Vivendi will be crucial to ensure a smooth completion of the sale.

With its 24 per cent voting stake, Vivendi could throw a spanner in the works at any TIM shareholder meeting to vote on a deal or challenge it in the courts. ($1 = 0.9434 euros)