Market Insight

Telecom Italia plans voluntary separation of fixed access network

March 07, 2018

James Joiner James Joiner Senior Research Analyst, Service Providers & Platforms
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Telecom Italia has announced its plan to separate its fixed access network division into a new independent legal entity, known as Netco. Netco will assume responsibility for managing Telecom Italia’s fixed access network, the associated infrastructure (such as buildings, electronic equipment and IT systems) as well as the staff that work directly on Telecom Italia’s fixed access network business.

The Telecom Italia board has approved the plan for legal separation and the next step is for Telecom Italia to notify the Italian telecoms regulator (AGCOM) of its decision.

Our analysis

Italy has witnessed an improvement in the deployment of next-generation broadband services in the last two years. At the end of June 2017, Telecom Italia announced it had passed 70% of Italian households (16.6 million) with its fibre-to-the-cabinet (FTTC) network and 1.5 million homes with fibre-to-the-premise (FTTP) technology. Nevertheless, Telecom Italia’s influence in the wholesale market for fixed broadband services has reduced, due to increased competition from Italian utility operator, Enel. Enel, a wholesale-only provider, plans to deploy FTTP services to 9.5 million households in 250 Italian cities by 2022. It already has wholesale agreements with a number of Italian operators, including Vodafone and WindTre, posing a direct threat to the future revenues of Telecom Italia’s wholesale division. Amid heightened competition, Telecom Italia’s plan for legal separation of its fixed network assets reflects a need to provide a clearer delineation between its retail and wholesale arms, in order for the wholesale division to improve co-operation with other Italian operators that seek access to its fixed network.

However, Telecom Italia is not only facing headwinds in the form of increased infrastructure competition. The company’s announcement comes at a time when it is under significant regulatory scrutiny, demonstrated by the Italian government’s decision to exercise its “golden power” over Telecom Italia in October 2017 (see: Italy exercises special powers to reduce Vivendi influence over Telecom Italia). A leading motivation behind Telecom Italia’s plan for voluntary separation is to reduce the likelihood of further regulatory intervention from the Italian government or AGCOM, the national telecoms regulator. For instance, AGCOM could attempt to enforce full structural separation upon Telecom Italia, requiring the operator to relinquish any ownership of its fixed infrastructure assets. The move by Telecom Italia to push for voluntary legal separation is a compromise between full structural separation and the current degree of separation between Telecom Italia and its network assets, and the expectation is that it will be sufficient to appease the Italian government and the telecoms regulator.

Nevertheless, Telecom Italia’s proposed legal separation of its fixed access network is unlikely to appease all parties as industry rivals continue to call for further action. In an interview earlier this year, Enel chairperson, Franco Bassanin, described legal separation between a telecom operator and its network infrastructure assets as ‘a step forward’, yet argued more action is required. Notably, there was a similar reaction in the UK to Ofcom’s ruling that BT Group and Openreach must become legally separate entities (see: BT finally agrees to 'divorce' Openreach). Vodafone, Sky and TalkTalk all argued legal separation did not go far enough, and calls continue for BT Group and Openreach to become functionally separate with no common ownership. The example from the UK highlights to Telecom Italia management that the move towards legal separation does not necessarily represent the end of the debate, even if the Italian government and regulator accept Telecom Italia’s proposals.

Telecom Italia is not the first operator to plan voluntary separation of its infrastructure assets. In the Czech Republic, investment fund PPF acquired the incumbent operator and voluntarily split it into O2 (retail) and CETIN (wholesale infrastructure, including mobile towers) in 2015. Meanwhile, investment group Macquarie is planning a similar move upon completing the acquisition of Danish incumbent operator TDC. For investment groups, legal separation enables a clearer valuation of an operator’s assets and provides added flexibility in terms of future divestments.  

Geography
Italy Western Europe
Organization
Telecom Italia
Research by Market
Mobile & Telecom
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