Market Watch

Telecoms Regulator Gives Conditional Approval for Telecom Italia to Launch FTTH


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The Italian telecoms regulator, Agcom, has given incumbent operator Telecom Italia the green light to launch its 100Mbit/s residential fibre-to-the-home (FTTH) services on the grounds that certain provisions for a competitive FTTH market are met.

The key conditions for the incumbent telco are:

  • Deployment of FTTH only in towns or cities where similar next-generation network services from independent operators are already available - while not specified, these presumably include FTTH, VDSL and DOCSIS 3.0 cable services
  • Limit of 40,000 FTTH subscribers in these towns or cities
  • Obligation to offer third party providers access to the Telecom Italia FTTH network on a ?retail minus' basis (where the wholesale product must be offered at a discounted rate to the same product provided at retail by the incumbent telco). The exact discount, definitions and conditions of the wholesale products are still to be determined

Telecom Italia has already rolled out a trial version of its 100Mbit/s FTTH service in Rome, Milan, Catania, Turin and Venice; by year-end 2011, it plans to have passed all homes in nine Italian cities with the speed, growing to 13 cities by year-end 2012, hitting 50 per cent population coverage (138 cities) by the end of 2018.

Independent providers Fastweb, Wind and Vodafone have also announced a joint venture to deploy FTTH to 10m inhabitants by 2015 at an initial cost of €2.5bn, with the possibility of expanding the project in a second phase to reach 50 per cent of the population for a total cost of €8.5bn.

The incumbent has not set a price point for the upcoming FTTH commercial service. In Q4 2010 competitor Fastweb launched 100Mbit/s services over its own FTTH network in a limited number of cities including Milan and Rome, with bundle prices starting at €45/month for broadband and fixed calls.

Analysis
Telecoms regulators within the Big Five have taken a variety of measures to ensure competition in FTTH deployments:

  • UK: BT is charged with opening up access to ducts, chambers and telephone poles to competitors as well as offering virtual unbundling access to VDSL and FTTP services (3rd party ISPs are not required to install cabling or equipment in the local network but still control many aspects of the service, e.g line speed, traffic management).
  • France: Arcep has ruled France Telecom must open up duct access to alternative operators; all operators are also obliged to share the optical fibre network they have deployed in buildings, within densely populated areas.
  • Spain: In January 2009 the Spanish regulator CMT ruled Telefonica is not obliged to offer wholesale access products at 30Mbit/s or above via its FTTC or FTTH network. The operator is however obliged to offer alternative operators access to its empty cable ducts and dark fibre.

The green light for the Italian incumbent's FTTH network follows BT's announcement to extend FTTH rollout to 4.2m UK homes (16%), France Telecom's target of 15m homes (60%) passed by 2020, with an interim target of ten million households by 2015 and Telefonica's deployment of 50Mbit/s FTTH products in certain cities. The German incumbent telco is committed to VDSL as part of its next-generation access strategy.

According to IHS Screen Digest data, the fibre-to-the-premise (FTTP) market is still nascent in Italy, with 0.3m connections as of year-end 2009; retail revenue from FTTP connections in 2009 amounted to €51.1m in the same years, although this is forecast to more than double towards 2014. DSL still accounts for the bulk of revenue in Italy, generating €2.3bn in 2009, rising to grow to €2.9bn over the next five years.

Fastweb became one of the earliest companies in Europe to roll-out a FTTH network when it launched its first residential fibre services in 2000, seeking to connect directly with consumers independently of the incumbent network. However, in 2005 the company shifted focus from FTTH expansion to growth via ADSL, which became a cheaper and quicker solution to grow market share following regulatory decisions on local loop unbundling (LLU).

Agcom's decision should precipitate deployment and adoption of FTTP services in the country, with Fastweb being the only current competitor in the space. However, it remains to be seen whether the obligation for open access and regulated pricing of FTTH wholesale products will reduce the propensity and scale of the incumbent's FTTH rollout (given concerns over the prospect for healthy return on expensive FTTH network investment).

Any regulatory concerns for Telecom Italia on FTTH rollout will add to anxieties applicable to many ISPs throughout competitive Western European markets about the economics of current-generation broadband. Over the past five years, strong price competition has left ISPs struggling, particularly smaller DSL players lacking network infrastructure and other core services on which to rely for revenue, in the face of declining average revenue per user (ARPU) and tightening retail broadband revenue margins once fees have been paid to third parties.

Typically, however, next-generation FTTH broadband provides higher ARPU than current-generation ADSL. While alternative provider Fastweb has positioned its 10Mbit/s FTTP services at prices that match or better similar DSL offers on the market, both Telecom Italia and Fastweb's range of higher speed FTTP products are expected to be supplied at higher prices.

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