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Tiscali Takes Next Step to SurvivalTiscali Takes Next Step to Survival

Italian broadband player to raise new capital and renew its domestic focus as the EU clears the sale of its UK triple-play operations

July 1, 2009

3 Min Read
Tiscali Takes Next Step to Survival

Things aren't getting any easier for Tiscali SpA (Milan: TIS), which has had a very rocky 2009. (See Tiscali Reports Q1, Tiscali Refutes Auditor Report, and Tiscali to Cut Staff.)

The Italian carrier is now just a shadow of its former self: It sold its international wholesale subsidiary, now renamed Tinet, to a private equity firm back in February; and it agreed to a £236 million ($388 million) deal to sell its U.K. triple-play business to Carphone Warehouse Group plc (London: CPW) in May. (See Carphone Buys Tiscali UK, UTStarcom Cutting Staff by Half, and Tiscali Sells Int'l Unit .)

The latter deal has just been approved by the European Union's competition authorities. After looking closely at the potential impact on the U.K. broadband services, the EU determined that the deal will not "significantly impede effective competition in the European Economic Area." (See EC Approves Tiscali UK Sale.)

Including Tiscali U.K.'s customers, Carphone now has more than 4.2 million British broadband users, while BT Group plc (NYSE: BT; London: BTA) has more than 4.8 million (residential and business), and cable operator Virgin Media Inc. (Nasdaq: VMED) about 3.7 million broadband customers.

That leaves Tiscali with its domestic Italian broadband services business, but that isn't exactly a big-time operation: It generated just €75 million (US$105 million) in revenues, and €5 million ($7 million) in earnings (before tax and interest), during the first quarter of 2009.

With 554,000 DSL customers at the end of the first quarter (having lost 32,000 during that three-month period), it ranks fourth in the Italian broadband sector with a market share of around 5 percent.

And it doesn't even have a triple-play offering with which to challenge rivals Telecom Italia (TIM) , Fastweb SpA (Milan: FWB), and Wind Telecomunicazioni SpA , having decided to terminate its IPTV service in December 2008. (See T Italia Set to Take IPTV Crown.)

Tiscali's next big hurdle is to sort out its finances and shore up its debt, for which it has, at least, a plan. (See Tiscali Tackles Its Debt.)

The first stage of that plan has been put into action, with the carrier announcing late Tuesday that, following approval at a shareholders' meeting, it's set to raise €190 million ($267 million) from the first of three planned capital increases, and will reduce its volume of shares with a one-for-ten reverse stock split.

The big question is: Can Tiscali survive, especially as rivals like Telecom Italia plan to raise the broadband bar further with fiber-to-the-home (FTTH) rollout plans? (See Italians Strike NGN Ducts Deal.)

Pyramid Research analyst Stela Bokun provides something of a comforting outlook for Tiscali. In a recent report, "Communications Markets in Italy," Bokun noted that DSL is set to be the dominant access technology in Italy in 2014, accounting for 58 percent of all fixed lines, with fiber access accounting for just 4 percent. She also expects the likes of Wind and Tiscali to be able to win some market share from Telecom Italia during the coming years.

In addition, Tiscali could also boost revenues and offer bundled services if it launches its planned mobile virtual network operator (MVNO) service: The operator struck an MVNO agreement with Telecom Italia in 2007.

The operator plans to unveil a new business plan once it has its debts restructured and the sale of the U.K. operation is completed.

Tiscali's stock is up by about 1.5 percent Wednesday morning to €0.30.

— Ray Le Maistre, International News Editor, Light Reading

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