Telecom Italia is to bring forward domestic investments in FTTx and 4G networks under its strategic plan for 2016-18, which will include a €12 billion (US$13.4 billion) capex plan designed to future-proof its networks and meet increasing demand for high-speed fixed line connections that is driven by video consumption and business user requirements.
At an investor presentation in London late Tuesday, CEO Marco Patuano presented an updated plan that highlighted investments in what the operator calls "innovation" technology -- fiber access, LTE, cloud and IP transformation -- which will account for more than half of the 2016-18 capex total.
The new capex total is €1.9 billion ($2.1 billion) higher than the operator's previous three-year plan, which was presented a year ago. (See Telecom Italia to Invest €3B in Fiber to Spur Growth.)
However, Patuano stressed that the strategy does not represent an increase in capex over the longer term because the accelerated investment will be offset by a reduction in capex after the completion of the new 2016-2018 plan. "We are accelerating capex, not increasing it," he said, emphasizing that the accelerated investment will be reversed after 2018, when investments will dip significantly by comparison.
The company will invest €3.6 billion ($4 billion) -- €700 million ($780 million) greater than under its previous plan -- to enhance fiber-to-the-home (FTTH) and fiber-to-the-cabinet (FTTC) coverage. The additional investment will see 84% of the Italian population have access to FTTH or FTTC-based services. "The game changer is the fixed [market]," said Patuano. "We have an increased opportunity [because of] the low penetration of fixed broadband in Italy which is in contrast to the high usage of mobile internet. Video is changing user habits," he added and is responsible for the notable increase in monthly fixed broadband traffic volumes during 2015, up from 255 petabytes of data in January to 330 petabytes in December.
Patuano added that the operator is seeing its fixed line losses fall as customers turn to fixed line services to meet their increasing data consumption requirements. Telecom Italia (TIM) 's revised plan includes a goal of achieving more than 8 million retail broadband lines in 2018 (compared with about 7 million now), with 1.5 million clients taking "convergent" services (including content/pay TV).
"In fixed, it's hard to reach revenue stabilization," Patuano said. "In order to do it, we will accelerate capex [in] innovation projects. It's an acceleration -- the demand is there, the moment is now."
In addition, Patuano announced that Telecom Italia will invest €1.2 billion ($1.37 billion) -- about 25% more than under its previous plan -- to accelerate LTE penetration. "LTE is not just a matter of coverage, it's also a matter of densification as we move customers from 3G to 4G," he said.
The operator has modeled its mobile expenditure without taking into account any funding from the Italian government for providing coverage to rural areas, including an existing project in southern Italy that is expected to result in funding of €350-400 million ($390-445 million).
Further areas of accelerated investment detailed by Patuano include €300 million ($334 million) for customer premises equipment (set-top box and home gateways) and an extra €200 million ($223 million) for its international and wholesale operation Telecom Italia Sparkle for investments in additional core capacity and data centers, while the planned €500 million ($557 million) in capex for the transformation to all-IP networks and introduction of virtualization remains unchanged.
The new investment plan was announced in tandem with Telecom Italia's preliminary 2015 financial results, which showed that while overall group revenues (domestic plus Brazil) declined by 4.6% year-on-year to €19.7 billion ($21.9 billion), domestic services revenues improved through the year.
Now the operator plans to capitalize on that momentum with its new capex "acceleration" program.
— George Malim, contributing editor, special to Light Reading