News
Italian incumbent upgrades domestic guidance but will have to gear up for battle in both fixed and mobile markets.
Telecom Italia is in trouble in Italy.
Two days ago the the Italian incumbent was upbeat on its prospects in its home market. It upgraded its full-year outlook, revealing that it expects earnings at its domestic business to grow in 2016, after a strong performance in Italy in the second quarter.
But while its financials are looking healthier, Telecom Italia now faces a battle for position on two fronts simultaneously: the fixed and the mobile markets.
On the fixed broadband side, utility company Enel is proving a real thorn in the incumbent’s side and on Thursday it really put the cat among the pigeons when it announced that it has brokered a deal to acquire fibre network operator Metroweb, blocking Telecom Italia’s reported plans to snap up the operator itself, and enabling Enel to accelerate plans to roll out an Italian fibre-to-the-home (FTTH) network.
Earlier this year Enel announced its intention to spend €2.5 billion on a wholesale FTTH network in 224 Italian cities that will pass 7.5 million premises by 2021, putting it in direct competition with Telecom Italia. Now it has succeeded in acquiring Metroweb – it will take control of Metroweb via a complex transaction that values the fibre operator at €814 million and will merge it with Enel OpEn Fibre (EOF), the unit responsible for the FTTH rollout – it has upped its budget to €3.7 billion and plans to deploy infrastructure in 250 cities, passing 9.5 million premises by 2021.
Enel is not seeking to become a retail player in the broadband space, but is open to wholesaling its FTTH network to all-comers; it has already signed letters of intent with Wind and Vodafone, both of which are keen to boost their presence to compete more effectively with Telecom Italia.
Telecom Italia is not standing by helpless though.
Earlier this week it announced the creation of an 80:20 joint venture with Fastweb that will roll out FTTH coverage to 3 million premises in 29 cities over the next four years. The JV also plans to offer wholesale access to other retailers.
That announcement came in the same week that NJJ Holding, the investment company owned by Xavier Niel, confirmed that the French businessman does not hold any shares or options relating to Telecom Italia.
Niel built up a long position in Telecom Italia last year, but agreed to cut ties with the company when his French telco Iliad agreed a deal that will enable it to launch services as Italy’s fourth mobile network operator upon the merger of Wind with 3 Italia.
Hutchison and VimpelCom, parent companies of 3 Italia and Wind respectively, agreed to merge their Italian businesses via a €21.8 billion deal in August last year and are now waiting for the green light from the European Commission.
Earlier this month, Iliad announced it will acquire spectrum and mobile base stations from the merged entity, presuming the deal goes ahead, and has brokered a network roaming arrangement with them. This deal should help push through approvals in Brussels, and many industry watchers expect the Commission to OK the tie-up imminently. Technically, it has until 9 September to publish its decision in the case.
A merged 3 Italia/Wind will usurp Telecom Italia as the leading player in the Italian mobile market. Together the telcos served 33% of Italian mobile subscribers as of the end of March, according to new statistics from regulator Agcom. That puts the merged entity ahead of Telecom Italia, with a 30.8% market share, and Vodafone with 28.9%.
Absolute numbers are, of course, not the be all and end all, and Telecom Italia was well aware of the likely changes in the market before it updated its guidance. But the fact remains that the Italian incumbent has new, strong competition to deal with. And it needs to fight the battle on two fronts.
