MILAN (Reuters), – Telecom Italia Two sources have confirmed that TIM is looking to reach a preliminary deal with CDP, a state lender. The agreement will cover a long-held plan for TIM’s network assets to be merged with Open Fiber’s state-backed rival Open Fiber. This could happen as soon as next week.

TIM has come under intense pressure over the years from its highly-competitive domestic markets. Last month, TIM began formal negotiations with CDP in an effort to revive a plan for a single champion broadband network.

Negotiations came at a time when TIM CEO Pietro Labriola, who took the helm of the company in January, is working on a proposal to break up TIM’s operations in a bid to unlock value and pursue M&A deals.

Labriola stated that the ex-phone monopoly would be open to relinquishing its network infrastructure as part of a deal to facilitate a merger with Open Fiber.

As part of this overhaul, most TIM’s network assets will be consolidated into a distinct unit known as NetCo. It would also take over a substantial portion of the company’s domestic debt and staff.

According to sources, TIM and CDP have completed a draft agreement for a framework. The agreement can be reviewed at a Telecom Italia board meeting on May 26, but cautions that the agreement is not binding.

Italy wants to establish a national champion network to prevent duplication of investments and accelerate fibre optic roll-out across the country.

Sources have stated that the Treasury-controlled CDP is the second-largest investor in TIM with a 10% stake. It also holds a 60% interest in Open Fiber and aims to take full control over the network entity.

Macquarie’s Infrastructure Fund and KKR are minority shareholders in Open Fiber, TIM Grid, respectively. They have been part of discussions because their support is essential for any plan being implemented.

KKR spent 1.8 billion euros to purchase a 37.5% share in Telecom Italia’s last mile network unit FiberCop. It also attempted a failover for the entire TIM. KKR expressed concern about potential regulatory and valuation problems related to the single network planning.

However, a source who is familiar with the subject said that the Fund would not object to the framework agreement.

(This article refiles in order to amend paragraph 9’s reference to Macquarie & KKR).