Telecom Italia 'forces' competition into FTTH intiative

Thursday 6 May 2010 | 14:00 CET | Market Commentary
FastWeb, Wind and Vodafone Italia have partnered to develop a next-generation broadband network in 15 Italian cities, Dow Jones reports. The operators would invest EUR 2.5 billion in the network open to other services providers, including incumbent Telecom Italia. The three operators are expected to announce the plan on 7 May. If the report is correct, this is likely an open FTTH network. This may be a point-to-point network, rather than a PON network, in order to ensure it's open.

Cooperation among the three main challengers on the Italian market is a welcome development. Telecom Italia has no competition from cable networks and the incumbent is struggling under a pile of debt, making the perfect recipe for under-investment in its network. The government has made several attempts to force a structural separation on the operator, but these have all failed in political squabbles. The regulator is also struggling with the question of whether the LLU tariffs should be increased (to give Telecom Italia an incentive to invest) or actually cut (to help the competition).

It looks like the market has lost patience with these debates. Fastweb is already an FTTH pioneer and controlled for 82 opercent by Swisscom, which has already embraced FTTH under pressure from the Swiss energy sector. Vodafone is taking a major step, setting aside its previous strategy for an infrastructure-light approach to broadband services. Wind is part of the Weather Investments consortium, which also includes Orascom Telecom, and offers both fixed and mobile services.

The 15 largest cities in Italy have a combined population of almost 10 million, or around 4 million households. The reported budget of EUR 2.5 billion leads to a cost then of EUR 600 per household. A price of EUR 1,000 per house is more normal, but after including Fastweb's existing assets and the number of appartment complexes, the cost could probably go lower in Italy. In any event, the cost should be doable for the well-capitalised parent companies of the three operators.

The big question then is what will Telecom Italia do? There are three possibilities: 1) compete, 2) Telecom Italia becomes a service provider on the new network or 3) the challengers force a tighter cooperation with Telecom Italia making its network assets available.

The third option seems most likely, but will require a flexible approach from Telecom Italia. The plan also raises the question of what Vodafone plans to do for broadband in other countries. In the Netherlands a direct investment is not likely as Reggefiber and a few others have already started with FTTH, but a role as service provider is among the possibilities.

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