Iliad entered the Italian mobile market on 29 May 2018, as part of the remedy package that mandated the merger between Wind and Tre, which was announced in 2016. Iliad launched with a compelling 30-day tariff, offering 30GB data for €5.99 per month. Within 50 days, it accumulated one million mobile subscribers, which is equivalent to 1.2% of total mobile subscribers in Italy. Looking forward, the mobile operator has stated its ambition to capture 10% of the Italian mobile market. In a market where over three-quarters of mobile subscribers are on prepaid tariffs without contracted terms, Italian incumbent mobile operators must react quickly to combat the Iliad threat.
Telecom Italia’s sub-brand pre-empts Iliad
In the second quarter of 2018, which coincided with Iliad’s market entry, Telecom Italia reported a net addition of 590,000 mobile subscribers and only a slight decline in mobile ARPU from €11.89 to €11.82.
Telecom Italia’s successful quarter can be attributed to the success of its sub-brand, Kena, which launched at the end of March 2018. Positioned as a low-cost alternative to Telecom Italia’s TIM brand, Kena tariffs start at €2 per month for 200MB data and 200 minutes. Kena has been extensively advertised and is sold online and in selected TIM retail stores. It is a 3G-only service, which minimises the risk of customers switching to Kena from Telecom Italia’s more expensive (and 4G enabled) TIM brand. At the end of June 2018, Kena had accumulated 470,000 mobile subscribers; equivalent to nearly 80% of Telecom Italia’s net additions for Q2 2018, or 1.5% of Telecom Italia’s total mobile subscription base. This shows the extent of demand for a low-cost offering in Italy.
Vodafone focusses on convergence, with sub-brand launch delayed until the end of June
Vodafone recorded net losses of 289,000 subscribers in the second quarter of 2018; it’s largest subscriber reduction since Q4 2016, as quarterly churn increased from 27.9% to 29.1%.
Vodafone’s strategy to combat the threat of Iliad has focussed upon developing its converged proposition. It launched Vodafone TV in Q2 2017, followed by the launch of the Vodafone One fixed-mobile bundle in Q3 2017. This has helped Vodafone increase the penetration of fixed-mobile bundles in its fixed broadband base, rising from 16.7% in Q2 2016 to 31.5% in Q2 2018, which is around 10 percentage points higher than Telecom Italia’s fixed-mobile convergence penetration. Moreover, Vodafone report that mobile churn among customers on fixed-mobile plans is 15 percentage points lower than mobile-only customers.
Like Telecom Italia, Vodafone also launched a sub-brand, Ho, but not until the end of June 2018. Ho is not sold in Vodafone retail stores, but is sold online, through third party stores and at news kiosks. This reduces the risk of brand dilution, but eliminates a key route to market - and removes any halo effect pertaining from the reputation of the main brand. Following heavy subscriber losses in Q2 2018, Vodafone has positioned its Ho sub-brand to directly compete with Iliad’s launch tariff, with Ho advertising a headline offer of 30GB data for €6.99 per month.
Wind Tre launches new propositions on both the Wind and Tre brands
Since the merger between Wind and Tre in 2016, the combined entity has witnessed mobile subscriber losses in every quarter, with the complex mobile network integration process ongoing and occupying management time. However, despite Iliad’s market entry, Wind Tre’s mobile subscriber decline slowed in the H1 2018, with a reduction of 344,00 subscribers compared with 1.46 million in H1 2017.
Whereas Telecom Italia and Vodafone have both introduced sub-brands specifically to combat the Iliad threat, Wind Tre already had two established mobile brands since the merger. The Wind brand is positioned towards families and the home segment, whilst Tre is aimed at younger customers. Nevertheless, the separation between the two brands remains blurred, with both launching fixed-mobile bundles for less than €25 in September 2017.
In response to Iliad’s entry, Wind Tre has launched promotions on both brands. Wind gave away 20GB of mobile data to customers who had subscribed to Wind for more than 12 months, whilst Tre added 6 months free Apple Music to its 3 months free Netflix promotion.
In summary, IHS Markit believes incumbent mobile operators require a mix of strategies to combat the threat of disruptive players like Iliad. Whilst converged propositions are likely to resonate well with mid-tier and high-value customers, a low-cost sub-brand is needed to reduce churn among value-seeking customers. Telecom Italia has been impacted the least by Iliad’s market entrance, which can be attributed to its well-established converged portfolio, as well as the early launch and clear positioning of the Kena sub-brand.