3, Wind merger to create mobile market leader in Italy with over third of customers

Friday 25 September 2015 | 08:56 CET | Background

The wave of mergers and acquisitions continues in Europe, and Italy is next in line. In August, the Italian subsidiaries of VimpelCom (Wind) and Hutchison (3 Italia) confirmed plans to merge, reducing the number of mobile operators in Italy to three from four. According to the latest figures from Telecompaper, the merged entity could become the largest mobile player in Italy with over 31 million customers, more than current market leader TIM. Wind and 3 Italia would have a combined market share of 37 percent of customers based on figures for Q2 2015. In terms of mobile service revenue, they would together take 33 percent of the market, just slightly less than incumbent TIM.

The pressure to merge appears to be relenting slightly in Italy, as the annual decline in service revenues slowed to 1.7 percent in the second quarter, much less than in previous quarters and a double-digit drop in the same period last year. Mobile service revenues reached a total of EUR 3.4 billion in Q2 2015. This article is based on the latest statistics on Italy from Telecompaper’s research database.

From 4 to 3 network operators, with 142% market penetration

Multiple-Sim use is common in Italy, due in part to a state concession tax on postpaid plans. This has led to one of the highest mobile penetration rates in the world, far above the European average, of 142 percent in Q2 2015. This is equal to more than 86 million mobile SIMs. The market is dominated by TIM, Vodafone and to a lesser extent Wind, while 3 Italia continues to struggle to build a large base. This combined with the continued market decline in revenues and the need for additional investment has pushed the company to look for alternatives.

After months of negotiation and speculation, Wind and 3 Italia confirmed an agreement on a 50-50 merger in August 2015, equally owned by Vimpelcom and Hutchison. The combined entity expects to generate OPEX and CAPEX synergies of at least EUR 5 billion, mostly coming from network and IT integration. Annual run-rate synergies are expected at around EUR 700 million, 90 percent of which should be realised by the third year post-closing.

In September, the Italian government confirmed it would not stand in the way of the merger, the prime minister's office said in a statement. Although it won’t be exercising its veto power, the government called on Wind and 3 Italia to be upfront about the impact of the operation from a technological and employment perspective and to ensure that management and security functions remain in Italy. The companies aim to complete the deal within 12 months and to apply to the European Commission for competition clearance. The EC may prove somewhat more difficult than the Italian government, notably since its recent veto of the Telia-Telenor merger in Denmark. However, Hutchison has expressed confidence that the deal will go ahead, based on the company’s earlier experience consolidating the Austrian and Irish markets.

Prepaid revenues still growing, 3 Italia gaining market share

Prepaid is still dominant on the Italian market, although hybrid plans offering monthly bundles of minutes, SMS and data from prepaid credit are increasingly common. In the second quarter of 2015, prepaid service revenues rose by 6.6 percent on an annual basis, while postpaid revenues were down by 13.3 percent over the same period. Prepaid increased by 4.0 percentage points to 64 percent of all service revenues in Q2 2015. All the operators said they have seen improving sales trends, mainly due to growth in data users and non-voice revenues. Total non-voice revenues increased annually by 6.3 percent and made up 46 percent of total revenues in Q2 2015. Nevertheless, most operators continued to experience a small decline in total service revenues. Only 3 Italia was able to show growth of 6.1 percent year-on-year, due to strong growth in both prepaid and postpaid.

In previous years cuts to termination rates impacted Italian service revenues, but in the summer of this year the Italian regulator AgCom approved a draft plan for keeping mobile termination rates stable at 0.98 eurocents per minute for all operators through 2017. This should support the further stabilisation in market revenues.

3 Italia’s revenue growth helped it reach an 11.0 percent share of service revenue in Q2, up from 10.2 percent a year earlier. The other three operators all showed a small decline in share over the past year. TIM remains market leader with 34.2 percent of revenues in Q2, followed by Vodafone with 32.6 percent and Wind at 22.2 percent.


Mobile connections decreased by 0.3%, postpaid almost 23% of SIMs

Total mobile connections in Italy fell by 0.3 percent year-on-year to 86.5 million at the end of June 2015. Prepaid still made up 77 percent of the market, versus 78 percent in Q2 2014. Excluding MVNOs and M2M (except for TIM which includes M2M), the Italian market lost around 2.7 million mobile connections in the past year, mainly in prepaid. In contrast, the postpaid market grew 1.1 percent (or by 0.2 million), leading to a slightly higher share of postpaid customers in the total base, at 22.8 percent compared to 21.9 percent at the end of Q2 2014.

If their merger is approved, Wind and 3 Italia would have a combined share of 36.5 percent of customers based on the Q2 figures, while TIM would fall to second place with 34.8 percent and Vodafone would become the smallest operator with a 28.7 percent share. In the most recent quarter, only 3 Italia showed a net gain in customer numbers, both on an annual and quarterly basis, mainly due to growth in postpaid SIMs.

The above figures are based on Telecompaper’s database on the Italian mobile market, which are available for purchase. For more information, click here.

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