By Elvira Pollina and Mathieu Rosemain
MILAN (Reuters) -Iliad is considering buying into Telecom Italia (BIT:TLIT)'s (TIM) domestic consumer services operations as part of the French phone group's push to strengthen its Italian business, two sources familiar with the matter said.
Iliad is weighing the investment as TIM works on a turnaround plan centred around a split of the debt-laden former phone monopoly's wholesale fixed network from its services business.
Iliad targets in particular the domestic consumer service unit TIM would create as part of its reorganisation process.
Such a unit would include TIM's fixed and mobile consumer businesses, which last year accounted for 73% of its 9.9 billion euro ($11 billion) domestic service revenue. It would also include mobile frequencies.
TIM and Iliad declined to comment.
Founded by French billionaire Xavier Niel, Iliad launched low cost mobile services in Italy in 2018, intensifying already ferocious price competition in the country's crowded telecoms market.
Top executives at Iliad have repeatedly stated the group's interest in an Italian peer if anything came up for sale.
One of the sources said Iliad had informed TIM's top investor Vivendi (OTC:VIVHY) of its interest in the consumer business. A spokesperson for Vivendi said the French media group had not had any contact with Iliad.
A third source close to the matter said TIM had not received any proposal from Iliad so far.
The French group has shifted its focus to TIM after a failed approach for Vodafone (NASDAQ:VOD)'s Italian operations in February.
At the time Iliad teamed with Apax Partners to submit an 11.25 billion euro non-binding bid which the British operator swiftly rejected.
Apax, which is looking at a potential investment into TIM's services business, is not working with Iliad at present, a fourth source familiar with the situation said, dismissing reports in some Italian newspapers of the pair teaming up again.
TIM has been drawing the attention of investment funds as it looks to unlock value by carving out assets.
Last week it effectively blocked a takeover approach by KKR, but the U.S. fund could still play a role in the spin-off of TIM's network in which it is an investor.
The spin-off would facilitate a mooted merger of TIM's network assets with those of state-backed rival Open Fiber, with state lender CDP in control.
CDP is TIM's second-biggest investor after Vivendi. The French media group would shift its focus on TIM's services business, which has already attracted interest from investment fund CVC.
"With the odds of a KKR bid now virtually at zero, the breakup scenario seems to involve more and more options given the string of potential interested parties for certain portions of TIM's business", broker Banca Akros said in a note.
Akros said TIM's consumer services business could be worth around 4 billion euros.
($1 = 0.9237 euros)
(Reporting Elvira Pollina in Milan and Mathieu Rosemain in Paris, editing by Valentina Za, Kirsten Donovan)