While Italy may have lagged behind its neighbours in some areas of telecom, the country's sheer number of cellular subscribers makes it attractive territory for the rollout of new technologies.
Certainly 1999 will be remembered as a key year in the Italian telecom market:Telecom Italia was unexpectedly acquired by Olivetti through Europe's largest ever hostile takeover bid; Mannesmann became Telecom Italia's main competitor through the acquisition of a majority interest in Infostrada and Omnitel; the mobile market continued booming with cellular subscriptions overtaking fixed line ones; and consumers are finally experiencing real competition in the long distance market. But perhaps more importantly, there now appears to be a general consensus about how important a modern, efficient and competitive telecom market is for the entire economy.
However, not everybody is happy: the liberalisation effort is still far from over; data traffic remains underdeveloped; Internet usage is well below the European average; new infrastructures built to compete with Telecom Italia are still modest; and the future of local telecom equipment manufacturers is uncertain. Yet opportunities clearly exist: from switchless resellers (none exist today), to high-speed Internet access (there is no CATV infrastructure in the country). From new electronic commerce solutions based on GSM phones (Italians love their prepaid cards), to the manufacture of innovative products (there are plenty of highly trained electronics engineers available in the country).
The New Telecom Italia
It is too early to see the effects of the ownership change at Telecom Italia. The new management team was appointed by new shareholders only at the end of June and the company still has to publicly announce any significant new strategy plans.
Financially, 1998 was another record year for Telecom Italia. Consolidated revenues reached E 23.5 billion (US$ 24.5bn), up 6.2 per cent, thanks to the favourable trends in the telecom and the information technology sectors. The dynamics of the core business revenues reflect, in particular, the continued good level of revenues for fixed telephony (up 2.0 per cent). This has been stimulated by the incisive contribution of innovative services like ISDN and Internet access, which have experienced growth of 71 per cent, and the substantial growth rate of revenues derived from mobile telephony products and services. Revenues of the incumbent's mobile subsidiary, Telecom Italia Mobile (TIM), rose by 25.8 per cent.
So far, Telecom Italia has been one of the few large carriers not involved in a major international alliance. In the past, several 'announced' alliances never really materialised and it is far from clear if the new management will finally strike a major deal with another telco or continue to go it alone. Most of its current international activities are in South America, Spain and Greece, while multinational customers are targeted by the loss-making TMI subsidiary.
Capitalising on the massive investment of the 1990s,Telecom Italia has an almost fully digital circuit-switched network serving approximately 26 million lines, about 10 per cent of which are ISDN. It has more than two million kms of fibre in the long distance network plus around half a million in the access network.
More recently, the operator has invested in an overlayed ATM-based backbone that serves as a multiservice network to deliver various end user services such as frame relay, IP transport and LAN-to-LAN offerings.
Telecom Italia also has some 'scrapped' infrastructure, codenamed FIDO and SOCRATE, which it wrote down in the last balance sheet as more than E 1bn. FIDO is the DECT-based local mobility service which has not lived up to its forecasted success. This has left Telecom Italia with a largely unused DECT-based infrastructure in the main cities, still operating but only for a very small user base.
SOCRATE is the name of the massive investment plan launched in the mid1990s to 'cable the country' with a HFC (hybrid fibre coaxial) infrastructure. After having passed about half a million homes in a few cities, Telecom Italia abandoned the project and is now favouring ADSL technology to revamp its access network rather than investing in a brand new one.
Europe's Largest Cellular Market
Italians have literally, fallen in love with the mobile phone, making Italy by far the biggest market in Europe with 25 million users (at the end of June), and a penetration rate of 42 per cent. In early July, mobile phone users surpassed the number of fixed line users. This success has often been linked to the 'chatty' character of Italians.Although this might have played a role, clever marketing, continuous innovation fuelled by competition and technological excellence, have probably been much more important. The result is that TIM and Omnitel are now Europe's biggest cellular operators. TIM launched its highly successful prepaid service in October 1996 with no fixed costs and no monthly charge; a scheme highly appreciated by Italians. Today 75 per cent of the operator's customers use prepaid cards, and the same is true for Omnitel which pioneered many new services, including prepaid ones targeting the business community.
This year has brought a new player onto the scene. Owned by France Telecom, Deutsche Telekom and ENEL (the state-owned electricity company), Wind has focused its marketing campaign on ease-of-use and convergence. In fact, it was the first company to offer an integrated mobile and fixed line service (limited to long distance calls because of strict current regulation). So far Wind has recruited more than 300,000 users.
But these current players will soon have to face further competition from Blutel; a new company that was recently awarded the fourth and final GSM/DCS licence. A joint venture backed by BT, Distacom, Mediaset, Autostrade and others, Blutel expects to launch its mobile services by March 2000.
At Last, Competition
Competition was an unknown word in the Italian telecoms sector until a few years ago. Liberalisation was late in being adopted and sponsored by the government and the long-awaited national regulatory authority only started work last year. Although the market for data transmission and closed user group voice services has been partially open for a few years, it was only at the end of 1998 that competitors to Telecom Italia were really able to challenge the incumbent. This followed the approval of the crucial interconnection agreement that paved the way to offering services both to companies and ordinary consumers. Nevertheless, Telecom Italia still maintains a monopoly over local calls, and competitive suppliers in the long distance service are reachable only through a four or five digit access code. Furthermore, carrier preselection and number portability are not yet available.
So far, the most aggressive competitor to Telecom Italia has been Infostrada (founded by Olivetti and sold to Mannesmann following the Telecom Italia takeover). At the end of June, Infostrada had recruited more than two million customers for its long distance voice service. This was achieved though a strong emphasis on advertising and a diverse mix of sales channels, including direct sales, telemarketing, multi-level marketing and points of presence in bars, lotto kiosks and other general shops. Its strength has been in choosing to build its nationwide backbone network early on, with more than 3,300 kms of fibre laid throughout the country based on ATM technology.
Now more than 50 operators have been licensed to offer voice services and many others are expected to enter the market soon. Some of them, like Albacom (backed by BT), have chosen to focus on business users while others have targeted residential consumers or small and medium-sized enterprises (SMEs). The most notable example is Tiscali, a Sardinian company that pioneered national long distance service sold through prepaid cards at bars and newspaper kiosks.Tiscali has also been the first company in Italy to promote the free-ISP model - later followed by Infostrada.
Infrastructure Needed?
Telecom infrastructure is still mainly in the hands of Telecom Italia. In Italy, there are no CATY networks; therefore the only alternative access network currently available is the cellular phone. Because the regulatory authority is still evaluating whether to force the incumbent to unbundle its network, many would-be competitors are still pondering if it would be better for them to be facility-based or not. So far, most infrastructure investments made by Infostrada, Omnitel and others have been in long distance networks. However, a few companies, including COLT, have begun to build their own local networks, namely in Milan - which has the country's highest concentration of business activities. In general, city councils, that must authorise any digging, have been slow in understanding the importance of a new telecoms infrastructure. Therefore, most of the competitive suppliers are still leasing lines from Telecom Italia. However, the situation is very likely to change in the near future with many councils now more willing to cooperate, thus loosening their bureaucratic grip on new companies willing to build access networks from scratch.
Other competitive companies have taken the opposite route, preferring to act as resellers, pioneering a business model that is still in its infancy in Italy. In fact, the Italian telecom market is still missing pure switchless resellers; the first one, LinkUp, has just announced its services.
New Opportunities
The Italian market certainly offers many opportunities, especially if the offering includes innovative and easyto-use services. In terms of the residential market, while there is an enormous base of mobile phone users, at the same time Italians are not yet addicted to the Internet. Italy may therefore offer one of the best testbeds to trial electronic commerce solutions based on GSM prepaid cards. Both TIM and Omnitel are already experimenting with new services delivered through WAP (wireless access protocol) compliant terminals, web and voice access. In Italy, because the use of credit cards is far less widespread than in the rest of western Europe, GSM prepaid cards could be exploited as the most common form of consumer payment system.
In addition, once the local call market becomes competitive, the integration of fixed and mobile phone services could be exploited to the full, especially if number portability is granted. Again, mobile operators are already working on this, and they are already able to offer integrated tariff plans to business customers as well as residential consumers.
As for the business market, data transmission usage is still under the European average. This is due both to the historical underdevelopment of IT investment in Italy, and to the very high prices that have been imposed by Telecom Italia for many years. Now, with IP technology sponsored both by Telecom Italia and by new entrants, new data services are likely to catch the attention of a huge number of users, not only among large companies but also among the small and medium enterprises that represent the real strength of the Italian economy.
Manufacturing Equipment
Although there is no `national champion' left in Italy, there still exists a significant number of telecom equipment manufacturers. Among them is Italtel, which is going to be split into two separate entities with the mobile and transmission divisions going to Siemens, and the switching division going, temporarily, to Telecom Italia. Other large concerns active in the country are Alcatel, Alenia, Ericsson, Marconi and Siemens, plus a network of smaller local players such as IPM, Urmet and the fast growing Telital which manufactures cellular and satellite phones. Another highly specialised Italian company is Pirelli which has achieved worldwide success thanks to its erbium-doped fibre amplifier and wavelength division multiplexing (WDM) equipment.
Although the Italian telecom manufacturing industry has suffered recently, many skilled people are using their knowledge in new and ambitious projects. RF and satellite technologies, for example, have traditionally been two prominent applications developed by Italian researchers, and have prompted new entrants, like Nokia, to open new R&D centres in Italy.
Telespazio, part of Telecom Italia, is one of the biggest companies focused on satellite communications in Europe. It operates both as a service provider and a space and system provider, and is currently the only European private company capable of conducting a complete range of satellite management activities, from launch vehicle separation to transfer into final orbit. Globalstar satellites have been assembled and custom-built by Alenia, close to Rome, while user terminals are being designed by Telital.
But Italy is also the country where a 10-person company, Megsat, has been able to design, build and launch two micro-satellites for data transmission with a budget of only E Sm. That is only one example of how important SMEs are in Italy, and why the business plans of any successful telecoms provider needs to take this particular market sector into account. V
[Author Affiliation]
Stefano Car.zani is the founder of Studio Cazzani, a Milan-based consultancy focusing on telecoms and electronics.
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