Fastweb Plays Wireless Waiting Game

Fastweb SpA (Milan: FWB), one of Europe's triple-play pioneers, has mobile aspirations for 2007. With strong revenue and customer growth in 2006, the Italian competitor plans to bid for a WiMax license and launch a mobile virtual network operator (MVNO) business some time this year.

But the mobile strategy is ambitious because key regulatory decisions are unresolved.

The company outlined its wireless roadmap as it announced its 2006 financials and customer growth figures. Fastweb increased its broadband market share in 2006 by 2 percent to 13 percent as its subscriber base topped 1 million, making it the biggest broadband competitor to incumbent Telecom Italia (TIM) .

Fastweb reported a 30 percent revenue increase to €1.2 billion ($1.6 billion) for full-year 2006, compared to €967 million ($1.27 billion) in 2005. EBITDA margins increased 39 percent to €425 million ($558 million) in 2006, compared with €305 million ($401 million) in 2005. Net loss for the year was €123.6 million ($162 million). (See FastWeb Reports 2006.)

With similar growth targets set, Fastweb says it expects to report a net profit this year.

The Italian innovator is well on its way to emulating French trailblazer Iliad (Euronext: ILD), which, with its Free triple play operation, has clawed out a 23 percent broadband market share in France. (See Iliad Reports Subs Growth).

With an FTTH network underway, a national WiMax license in the bag, and interest in acquiring a mobile license, Iliad is a worthy competitor for Orange (NYSE: FTE). (See Iliad Buys Into French FTTH, Iliad to Buy Altitude Telecom, and Iliad Eyes Mobile License).

But Fastweb's ability to deliver a mobile strategy this year is in the hands of national regulator AGCOM . CEO Stefano Parisi wants a WiMax license and an MVNO business, but in both cases he is "waiting" for decisions from AGCOM.

For MVNOs, there is no regulatory framework in place and the regulator has requested that the operators work out commercial agreements themselves. For WiMax, spectrum is available and licenses are expected to be issued in June this year, but the regulator has yet to publish any details.

Fastweb is currently talking to several mobile operators regarding an MVNO relationship, but does not yet have a deal. It particularly wants to work with Vodafone Italy , but discussions are proving difficult. "Vodafone says they're ready to open for MVNOs, but we're not seeing any sign of this," says a Fastweb spokeswoman.

But Parisi is confident that by the end of the year Fastweb will have a commercial MVNO agreement with an operator, or AGCOM will publish MVNO rules. However, he cannot say what kind of MVNO Fastweb will be until the rules are clarified or an agreement is reached.

"We are ready, and we want to start to give our customers their mobile phones," said Parisi, adding that he's keen to start selling mobile minutes to help push up the company's average revenue per user (ARPU) figures.

Fastweb's initial foray into mobile services, a partnership with Vodafone for bundled mobile and broadband services announced in September 2006, is still on the starting blocks, and is likely to be scuppered by the current lack of mobile number portability. (See Vodafone, FastWeb Team Up).

Vodafone asked the regulator for number portability between fixed and mobile services, but this has not been resolved. The partnership does not have any customers.

"Vodafone is reassessing the scenario and trying to decide whether the agreement is valid as is, or needs to be reshaped," says Parisi. "We're waiting for a green light from the [regulator] for [number portability]."

As for WiMax, Fastweb is keen to deploy the low-cost broadband network to replace the connections it currently wholesales from Telecom Italia. Where Fastweb's fiber and ADSL2+ network doesn't reach, the competitor buys broadband capacity from the incumbent, but the subscribers on those wholesale connections are Fastweb's lowest margin customers. Migrating those customers onto its own WiMax network will increase margins, says the operator, though it doesn't say by how much.

Parisi says capex spent on a WiMax network to cover 90 percent of the population would be between €300 million ($394 million) and €400 million ($526 million) over three to four years.

Licenses are expected to be issued in June, but AGCOM has not yet decided whether to hold an auction or a beauty contest, or whether the licenses will be national or regional. Fastweb wants to be a national WiMax operator.

"We don't know if we'll have a national operator or if we'll have regional operators," says Parisi. "Perhaps we'll have the opportunity to be a national operator through combined regional licenses."

At least one regulatory development in Italy -- Telecom Italia's decision to split its access network from its retail services business -- may work in Fastweb's favor. (See Telecom Italia Does the Splits.)

"Network separation is now a reality," says Parisi. "It will give more transparency for all operators and will be for all technologies -- not just ADSL, but also VDSL."

— Michelle Donegan, European Editor, Light Reading

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