Telecom Italia SpA (NYSE: TI) will light a fire under one of Europe's already hot broadband markets by investing €500 million (US$646 million) in the French DSL sector during the next three years (see Telecom Italia Outlines French Plan).

Having built a 4,000-kilometer optical backbone with Alcatel (NYSE: ALA; Paris: CGEP:PA) gear, and bought itself a near 7 percent DSL market share by splashing out €266 million ($343 million) to buy French ISP Liberty Surf from Tiscali, the Italian operator is now planning to spend €350 million ($452 million) on access gear and OSS systems and €150 million ($194 million) on marketing and sales support in the 2005-2007 period.

Telecom Italia has been building its presence in France since late 2003, when it turned to Alcatel to help built its backbone. Its strategy since then has been to unbundle the local loop and install its own equipment in France Telecom SA's (NYSE: FTE) local exchanges, but by the end of 2004 it had only 40,000 or so broadband customers for its "Alice France" DSL service, with dialup customers making up the balance of its 205,000 total subscribers.

The Liberty Surf acquisition has changed all that. Now it has 1 million subscribers, including 400,000 broadband customers, and an aggressive plan to unbundled 15.5 million lines (nearly half France's total) in 650 local exchanges in more than 100 French cities.

And although it has just 400,000 of France's 6 million DSL lines at present, the Italian carrier projects its likely DSL market share to reach 10 million by the end of 2007, citing Liberty Surf's 500 retail outlets and "customer care skills" as an advantage.

Unbundling the local loop will also allow it to devise its own range of services, and the Italians certainly have the triple-play combo of voice, video/IPTV, and data in mind.

The trouble is, so do all the other providers, and two of them -- France Telecom's Wanadoo service, and Free -- are well ahead.

In his recent report, Next-Generation Broadband in Europe: The Need for Speed, Heavy Reading senior analyst Graham Finnie noted that France Telecom had nearly 3 million broadband customers at the end of 2004, while Free, part of Iliad (Euronext: ILD), had more than 1 million (see Iliad Ups Profits in 2004 and Iliad Ramps Up Broadband to the Homer).

The other main triple-play operator, Neuf Telecom, had 400,000 DSL users in January and is adding new customers fast (see Neuf: Time Is Right for IPTV).

So which companies will benefit from Telecom Italia's spending plans? It's not saying at present, though Alcatel looks well placed -- home turf, existing supplier to the carrier in France and Italy -- while both Siemens Communications Group and Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) are incumbent broadband access suppliers in Italy.

But there's no shortage of competition in the next-generation DSLAM market, as Light Reading's latest report, Who Makes What: IP DSLAMs, shows.

Whoever wins the deals, Heavy Reading's Finnie believes the carrier is sticking its neck out a bit. "That's an awful lot of money. I'd describe it as a high-risk investment. France is an incredibly competitive market, thanks largely to the regulatory environment. But as a result the prices are already very low, and there's also significant competitive pressure from cable companies such as Noos in the main urban centers where they'll be installing their own equipment. It's an impressive plan, but where's the differential that will allow them to make any money?"

And that's not the end of Telecom Italia's cross-border capex plans. In total, the operator plans to spend €800 million ($1.033 billion) on fixed-line "European broadband projects" outside its home turf. No doubt much of the rest will be spent in Germany, where the operator, building on its 2003 acquisition of Hansenet, is also unbundling the local loop and now has about 280,000 broadband customers (see Italians Invade Germany).

It also has a strong presence in the Netherlands, where Telecom Italia owns broadband specialist bbned, which has about 200,000 broadband subscribers.

And it may yet decide to enter the Spanish market. Telecom Italia's non-compete agreement with competitive carrier Grupo Auna expired in July 2004.

— Ray Le Maistre, International News Editor, Light Reading

Need to know more about the infrastructure and services that are fueling the new broadband revolution? Check out the coming Light Reading Live! roadshow:

The Future of Broadband

at the Grand Hyatt in Denver on Tuesday, May 10

and

at the Westin Peach Plaza in Atlanta on Thursday, May 12

These events, hosted by Graham Finnie, Heavy Reading Senior Analyst, will feature informative presentations, product demonstrations, and lively panel discussions about all aspects of this burgeoning market.

Sponsorship opportunities are still available. Direct all inquiries to [email protected].