Telecom Italia loses game of fiber monopoly to EU

Italian operator's share price falls sharply after Italy's prime minister is reported to have shot down its plans to merge with Open Fiber.

Iain Morris, International Editor

May 6, 2021

4 Min Read
Telecom Italia loses game of fiber monopoly to EU

Surprise, surprise, the attempted resurrection of an Italian telecom monopoly looked ghastly to European competition authorities.

Reports suggest they were horrified by plans to let Telecom Italia take control of Open Fiber, a government-owned business, and create a single broadband network serving the whole country. Apparently fearing he would be denied coronavirus recovery funds if he allowed that to happen, Mario Draghi, Italy's latest prime minister, is said to have given it a Caesarean thumbs-down.

Telecom Italia's share price, accordingly, plunged 9.2% at one point today and closed down 5.5% in Milan. The operator had not responded to a request for comment at the time of publication, but Draghi's intervention may be nothing short of a disaster for Luigi Gubitosi, Telecom Italia's CEO, who has built much of his strategy on the foundations of a merger with Open Fiber.

Figure 1: Telecom Italia CEO Luigi Gubitosi faces major setbacks. Telecom Italia CEO Luigi Gubitosi faces major setbacks.

He had already set up an entity called FiberCop – holding all Telecom Italia's dumb physical infrastructure (ducts, sockets and so on) – and sold 37.5% of this business to KKR, an investment fund. Another 4.5% had been given to Fastweb, a rival operator, after FiberCop took full control of Flash Fiber, a company focused on full-fiber rollout. Telecom Italia previously owned 80% of Flash Fiber, with Fastweb holding the remainder.

Confused yet? So, probably, was Gubitosi, who must have had some positive signals from Giuseppe Conte, Italy's prime minister until February, when he was replaced by Draghi. Nor would markets have behaved as they have today if shareholders had not considered a merger with Open RAN to be likely, if not quite a fait accompli.

This may be a huge embarrassment to Gubitosi, who could have to explain to investors in Telecom Italia and FiberCop why his strategy still makes sense. While FiberCop is certainly not dead, it would face higher buildout costs without Open Fiber to create a nationwide full-fiber network. And it would have to share the market with a rival.

Scheduled for May 19, Telecom Italia's next earnings call with analysts could feature some lively discussion. This operator is one that can hardly afford more disappointment. Its sales fell more than 12% last year, to €15.8 billion ($19 billion), and its underlying profits sank 17.3%, to €6.7 billion ($8.1 billion). Mobile customers have veered toward lower-cost plans sold by Iliad, an upstart backed by French billionaire Xavier Niel. Telecom Italia's fixed-line business has fared badly, too.

Political interference

Gubitosi's merger plans obviously did not consider the probability of political interference at the European level. A merger between FiberCop and Open Fiber would have created the only big wholesale network available to broadband service providers. Open Fiber is not transparent about its footprint, but it was reported by the Financial Times to have reached 8.5 million of Italy's 26 million homes in September last year. Similarly tight-lipped, Telecom Italia reaches about 7.5 million properties with fiber, according to the Gigabit Monitor service provided by Viavi, a test and measurement specialist (although it is unclear if this means full fiber).

But even if Telecom Italia and Open Fiber were allowed to merge, the situation in Italy would not be much different from that in other countries where former monopolists still own most of the infrastructure needed to deploy fiber networks. BT's Openreach division in the UK is a case in point. There, regulators have been trying to ensure that other fiber builders can access BT's ducts and poles.

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At the very least, Europe's authorities need to be sensible and realize that digging new ducts and erecting new poles is probably not a desirable or efficient way to spur competition. It would also be at odds with developments in the mobile sector, where service providers are increasingly open to sharing the towers on which they hang their equipment. That trend explains why towercos, including companies that Telecom Italia and other service providers have carved out, are currently the industry's hottest property.

Carving itself up and selling bits to other companies has become Telecom Italia's favorite activity as it confronts a toxic mixture of debt and dwindling revenues. What's left after discounting its Brazilian operation as well as FiberCop and the Inwit towerco was described as "Rumpco" by Jefferies, a bank, in a research note this week. It is probably not the name Gubitosi would have picked.

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— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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