By Elvira Pollina

MILAN (Reuters) -Telecom Italia (TIM) and state lender CDP have signed off a preliminary agreement on Sunday to combine the phone group’s fixed network assets with those of state-backed rival broadband firm Open Fiber, they said on Sunday.

The move aims to pave the way to the creation of a single broadband network, as TIM CEO Pietro Labriola irons out a turnaround plan focused on a full-blown split of the group’s landline grid from service operations.

CDP, which is TIM’s second largest investor with a 10% stake and holds a 60% stake in Open Fiber, will control the combined network entity, the statement said, adding that the aim of the parties is to negotiate a binding deal by end-October.

Any binding agreement will be subject to the approval of national and EU antitrust authorities, while TIM’s shareholders will have to vote on the deal.

The preliminary agreement has the backing of infrastructure funds Macquarie and KKR, which hold minority stakes in Open Fiber and in TIM last-mile network unit FiberCop respectively, and will participate the combined entity.

Italy is keen to create a single broadband network champion to avoid duplicating investments and to speed up a fibre optic roll-out as well promote digitalisation of the economy.

Under pressure for years in its domestic market, debt-laden TIM plans to hive off its landline network, an asset for which analysts pegged valuations at between 15 and 20 billion euros ($16 billion – $21.5 billion).

While the final structure of the deal with Open Fiber has not been decided, options under discussion include an outright sale of TIM’s fixed network assets, sources have said.

The combined entity will take up a significant portion of TIM’s debt and domestic staff, the same sources added.

TIM and CDP signed a preliminary agreement in 2020 but that plan, which then envisaged TIM keeping a majority stake in the combined entity, run aground due to political, regulatory and valuation issues.

(Reporting by Elvira Pollina; writing by Elvira Pollina and Francesca Landini; editing by Nick Macfie and Diane Craft)