Telecom Italia strikes edge alliance with Google as sales slide

The Italian phone incumbent announced a strategic alliance with Google on the development of edge computing services as it reported a further dip in sales.

Iain Morris, International Editor

November 8, 2019

5 Min Read
Telecom Italia strikes edge alliance with Google as sales slide

Telecom Italia opened the door to a major strategic alliance with Google on the development of edge computing services as it reported dwindling sales for its fiscal third quarter.

The Italian operator is setting up a standalone company to manage its data centers and cloud services and will partner with Google on "go-to-market initiatives," it said in a statement issued this morning.

While details are thin, Telecom Italia said it was planning to hire another 800 cloud engineers and make investments in building new data centers to support edge computing services.

The basic premise is to bring IT resources closer to end users -- at the so-called "edge" of the network -- so that new services can be offered. Edge advocates say virtual reality, self-driving cars and other advanced applications will not be feasible unless telcos reduce the journey time for network signals.

But the edge is also seen as a potential new battleground between operators and Internet companies. Companies including Amazon and Google already provide cloud computing services and see edge computing as a natural extension of their capabilities.

The telco advantage could lie in the real estate they already own. Operators such as Germany's Deutsche Telekom and Spain's Telefónica are now transforming some of their central offices -- of which there may be hundreds or even thousands per country -- into small data centers.

While partnerships with Internet giants and application developers could speed up progress, some telcos are nervous about the long-term implications. In June, Australia's Telstra said it had been approached by Internet companies trying to restrict its edge activities. "I won't mention names, but we've already had exclusive deals offered where they want to provide infrastructure and for us to provide only connectivity," said Channa Seneviratne, Telstra's executive director of network and infrastructure engineering, at an industry event. "We don't see ourselves just providing dumb pipes."

The UK's BT has also sounded wary. Asked earlier this year if it would be willing to let players such as Google and Amazon into its edge, Howard Watson, BT's chief technology officer, declined to provide a clear answer. "I think that's something that we spend quite a lot of time thinking about and isn't something we're going to comment on at this stage," he told analysts during a call about earnings.

Despite the concerns of other telcos, Telecom Italia insisted its own deal with Google would help it to become a "key Italian player in the cloud and edge computing market."

"Thanks to the partnership with Google, a world leader in innovation, Telecom Italia confirms its focal role in promoting the technological progress in Italy," said Luigi Gubitosi, the operator's CEO, in its statement. "In the next years, cloud and edge computing will represent two of the key markets that will most benefit from the new products and services enabled by 5G technology."

Telecom Italia said it today serves more than 20,000 cloud customers in Italy, providing software-as-a-service to around 16,000 and infrastructure-as-a-service to more than 5,000.

"We look forward to working together with Telecom Italia to boost our support for Italian enterprises in their digital transformation journeys," said Thomas Kurian, the CEO of Google Cloud.

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The announcement came as Telecom Italia reported a 5% fall in revenues for the third quarter, to about €4.4 billion ($4.9 billion), compared with the year-earlier result.

It blamed the slide mainly on its efforts to quit international wholesale voice contracts that carry lower margins and said revenues for the first nine months of the year were down just 2.2% on a like-for-like basis, to about €11.8 billion ($13 billion), when the contribution from Telcom Italia Sparkle, its wholesale business, is excluded.

But figures indicate a further loss of mobile customers in the fiercely competitive Italian market. Telecom Italia finished September with about 21.4 million subscribers (excluding machine-based connections), roughly 1.3 million fewer than it had a year earlier.

It is fighting competition from Vodafone, Wind Tre and Iliad, an aggressive new entrant that launched services last year and has been eating into the market share of its older rivals. Domestic revenues for the third quarter dropped 8%, to around €3.5 billion ($3.9 billion).

There was better news from Brazil, where sales were up 7%, to €984 million ($1.1 billion), thanks largely to favorable currency movements.

Across the entire group, earnings (before interest, tax, depreciation and amortization) fell 5% in the third quarter, to about €2.1 billion ($2.3 billion), despite cost-saving activities including layoffs. Telecom Italia has cut its workforce by nearly 2,000 roles so far this year, giving it 56,048 employees at the end of September, and has slashed headcount by 15% since 2015.

Notwithstanding the setbacks, Telecom Italia has managed to reduce its net financial debt by €958 million ($1.1 billion) since the end of last year, to about €24.3 billion ($26.8 billion) in September.

It also hailed progress toward a possible infrastructure partnership with Open Fiber, a government-backed company rolling out a wholesale fiber-optic network. It has been searching for an infrastructure fund to support those plans and said a selection process is now underway.

Investors appeared to welcome the various updates, sending Telecom Italia's share price up more than 4% during mid-morning trading in Milan.

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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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