Telecom Italia in Broadband Clash With Govt – Reports
Picture the broadband scenario: The government of a fiber-deprived country commits public funds to a network rollout, prompting other private sector investors to announce parallel projects. Authorities are delighted by the sudden promise of broadband competition.
Apart from the government delight, this more or less explains recent developments in Italy. Having apparently withdrawn from a public tender for a subsidized broadband deployment in rural communities, telco incumbent Telecom Italia SpA (NYSE: TI) then said it would invest its own money in covering those areas with a fiber network. But instead of being chuffed at the prospect of market competition, Italy's government is in a huff.
According to various press reports, including this weekend update from Reuters, it has even threatened to seek compensation from Telecom Italia, claiming the operator's moves have damaged public interests. The government seems irked about the apparent U-turn at Telecom Italia.
This all comes after state-backed energy utility Enel won public tenders earlier this year and began work on building a rival broadband network. Telecom Italia seems to have stopped participating in these tenders out of concern the entire process was not transparent. For its own part, Enel is probably upset at discovering it will not be the only infrastructure player in the rural communities it is targeting.
Regardless of these machinations, the tenders seem to have been a catalyst for much-needed investment activity. Telecom Italia has surely been spurred to make fiber investments by Enel's own fiber moves. But the Italian government does not see it that way. Conceivably under pressure from Enel, it seems to think it is now wasting public money.
The contretemps, though, draws attention to the challenges facing governments and private sector investors when it comes to high-speed broadband investment. Any scheme part-funded through the public purse will have less chance of succeeding, or generating a decent return, if it is in competition with the private sector. Infrastructure-based competition could spur innovation and lower prices, but it represents a costly duplication of effort. As far as some industry figures are concerned, the more economically sensible approach is to build a single fiber network that gets used by a multitude of service providers. The challenge then is how one retailer differentiates itself from another.
Telecom Italia is certainly not for backing down, though. CEO Flavio Cattaneo is reported to have said that "the government's attack is worthy of a 'dirigiste' state," and that Telecom Italia is a "private company and in Italy companies are free to do business."
The operator is pursuing an ambitious investment program that it hopes will restore its fortunes and fend off the challenge from new rivals. Over the next three years, it has said, it will invest about €5 billion ($5.6 billion) in the rollout of ultra-broadband networks, including fixed and mobile technologies. But it is also confident that it can reduce capital intensity -- or capital expenditure as a percentage of revenues -- from about 25% last year to less than 20% in 2019. (See Telecom Italia Renaissance Gathers Pace.)
Having fallen to just €0.65 in early July last year, Telecom Italia's share price is currently trading at about €0.83, reflecting investor confidence in Cattaneo and his turnaround strategy. Sales and profits have been moving in the right direction. And Iliad, an aggressive French company that is due to launch a mobile service in Italy, may struggle to cause the same kind of disruption in today's competitive Italian market as it did in the moribund French sector about five years ago. Shareholders have not been unnerved by the latest developments, but a battle with the Italian state would be most unwelcome as the operator makes good on its spending promises. (See Cattaneo Spearheads Telecom Italia Revival and Iliad's Italian Odyssey May Be a Hard Slog.)
— Iain Morris, , News Editor, Light Reading