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Archived Report
Telecommunications in Italy

by Faulkner Staff

Copyright 2018, Faulkner Information Services. All Rights Reserved.

Docid: 00017652

Publication Date: 1808

Report Type: MARKET

Preview

The Italian telecommunications market is going through some major
changes. Telecom Italia, the former state-owned monopoly provider, faces ownership changes, a struggling economy, and
increasing pressure from the Italian government to improve the way it
works with competitors. Among its planned changes is the spinoff of its
networks operations. Meanwhile, the mobile sector is thriving and is
one of the most advanced in Europe with one of the highest penetration
rates in the world, and is seeing Vodafone use the market to test even faster LTE-Advanced technology.
Likewise, the merger of third- and fourth-place wireless carriers Wind
and Tre have led to increased competition throughout this sector. This
report takes a more detailed look at Italy’s telecommunications
marketplace.

Report Contents:

• Executive Summary
• Market Dynamics
• Market Leaders
• Market Trends
• Strategic Planning
  Implications
• Web Links

Executive Summary

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Traditionally, Italy’s telecommunications market is the fourth largest in
Europe, behind Germany, France, and the United Kingdom. As of 2016 – which was
the last time that the International Telecommunications Union published data on
the matter – Italy had:

• 20+ million fixed-line telephone subscribers
• nearly 91 million mobile-cellular customers
• 61 percent Internet use among population
• 26 fixed broadband subscribers per 100 citizens

Despite the country’s size, however, there is still room for growth due to lack
of "local loop" competition, a poor broadband deployment rate, and the
government having its hand forced by EU policies of recent years. Still, Italy’s
government has been criticized for not creating a level playing field for all
companies involved in the market.

Competitors

Telecom Italia – the country’s incumbent
service provider – remains the leading provider of local and long distance
calling, broadband Internet access, and wireless telephony. Other major cellular
service providers include Vodafone, Wind Tre, and Fastweb.

Regulations

Over the years, market regulator Agcom has forced Telecom Italia to consider a
number of options with regards to spinning off its network operations as a
separate business. This plan, most presume, would force the major carrier to purchase
wholesale network access just like its competitors.

In February 2018, Telecom Italia confirmed plans to spin off the networks
business as a "legally separate entity," per FT.¹ This move, it was
noted by the news outlet, comes amidst tension with the government over the role
of France’s Vivendi, which holds a 25 percent stake in the business.

For its own part, Telecom Italia has continued to deny allegations that it has
engaged in anti-competitive behavior over the years. In a February 2018
statement, the carrier noted that it:

"Has always operated in compliance with current regulations guaranteeing
full collaboration with all sector Authorities and maximum transparency for
its customers. TIM categorically rules out having engaged in any
coordination of its commercial strategies with other operators, also in
terms of the procedures and timing of compliance with Law 172/2017 which,
moreover, requires the whole market to adopt monthly billing for fixed and
mobile services by April 2018."

Overall, the wireless sector has been a star performer in Italy. Mobile device
penetration is among the largest in the world, sits at nearly 70 percent (2018). The market for
next-generation services also continues to grow, but the country’s wireless
providers have been slow to build out their 4G networks.

Figure 1 looks at Italy’s mobile device performance, as projected through 2019.

Figure 1. Italy Mobile Device Penetration

Source: Statista

The nation has also, it should be noted, experienced an increased demand for data communications, as
the number of Italian Internet users continues to grow rapidly despite a
relatively slow start.

Market Dynamics

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Italy is the fourth largest country in Europe, with nearly 59.3
million citizens (2018) and a population density of 202
people-per-kilometer. The country also has the eight largest economy in the
world in terms of GDP ($1.9 billion), trailing the US, China, Japan,
Germany, the UK, India, France, and Brazil. The country was a monarchy
and then a fascist dictatorship until a 1945 revolution overthrew and
killed Benito Mussolini. Today, Italy is a democratic country. The
Italian president – currently Sergio Mattarella – is elected by
parliament and serves for a seven-year term. The president, in turn,
appoints a prime minister, currently Giuseppe Conte. Figure 2 shows a map of Italy.

Figure 2. Italy

Source: CIA World Factbook

Table 1 looks at some of Italy’s core statistics.

State of the Marketplace

The Italian telecommunications market is advanced and open to competition in all
sectors.  

History of the Telecommunications Sector

The history of the telephone can be traced to Italy. While Alexander Graham Bell
is commonly referred to as the father of the telephone, an Italian inventor
named Antonio Meucci actually received a patent for the telephone in 1871, five
years before Bell. Both men became embroiled in a bitter court battle that
spanned several years. While the US Supreme Court ultimately ruled in favor of
Meucci, his patent on the telephone had already expired, while Bell had gone on
to found the company that ultimately became AT&T. 

Telephone service first came to Italy in 1877 (using telephones based on the
patent held by Bell), but the modern-day era started in 1994 when the Italian
government consolidated five communications companies into Telecom Italia.
Telecom Italia immediately started investing heavily in the country’s network
infrastructure, rolling out an ATM network and commencing construction on a
3500-km fiber-optic backbone that connects Italy to three of its neighbors. 

In 1997, the government consolidated the market further by merging Telecom
Italia with STET, another government-owned company, and then partially
privatized the company through an initial public offering. Two years later, the
Italian firm Olivetti made major news when it successfully launched a hostile
takeover of Telecom Italia, trumping an attempt by Deutsche Telekom of Germany.
Olivetti was acquired by a consortium of companies led by Pirelli in 2001, and
Telecom Italia and Olivetti merged in 2003.  

The telecommunications sector has been, and remains, an integral component of
the nation’s overall economy. Since competition was introduced in 1998, the
market has shown steady growth, particularly in the wireless sector. Telecom
Italia, however, remains the dominant player in many facets of the industry. It
dominates fixed-line telephony and is a top player in the ISP, wireless, and
satellite industries. 

Regulatory Environment

The Italian telecommunications market is regulated by the Communications
Regulatory Authority (Agcom). The liberalization of Italy’ telecommunications
industry has been driven by the European Union’s resolve to liberalize the
region’s telecommunications market. Policy initiatives concerning universal
service, interconnection, and licensing – initiatives spearheaded by the EU –
have found their way into Italy’ own telecommunications policies. The EU’
influence will likely go on to further shape the telecommunications sector in
Italy. 

Italy’s regulatory framework is built around the following directives:

• Individual licenses

• Interconnection

• Rates for individual licenses

• Numbering

Italy’s regulations were rewritten in September 2003 to meet EU directives. The
resulting Codiche delle Comunicazioni Elettroniche contains a number of
provisions to bring regulations in line with the Union. The most significant of
these is a very specific definition of what constitutes market power across a
wide range of services. Companies with market power – generally, Telecom Italia
– are required to encourage competition through a number of different remedies.

Fixed-Line Telephony

According to the most recent information compiled by the International
Telecommunications Union (ITU), which was last updated in 2016, there are
approximately 20.2 million local access lines
in Italy. This amount puts the country’s fixed-line penetration rate at around 33 percent. This penetration rate trails most of the Western European nations, and
this statistic has been steadily declining as wireless services continue to
grow. The following chart shows how the fixed-line sector has evolved in recent
years, as well as its growth projections moving forward. This market, Statista
noted, has reached $339 million (2018).

Figure 3. Italy Landline Statistics

Source: Statista

Italy’s domestic network infrastructure is generally good and slightly
different from that of its neighbors. Local exchanges tend to be closer
to end users than in other countries, permitting higher speeds at lower
cost for technologies such as DSL. There are also more local exchanges
in Italy than elsewhere, so alternative network operators tend to invest
in developing their own networks rather than attempting access to
multiple local exchanges. The network and fiber optic coverage in the
north of the country are better than in the south, reflecting Italy’s
traditional development pattern.

Wireless

The wireless sector has been a long-time strength of the Italian
telecommunications market. According to data compiled by the International
Telecommunications Union, Italy has 90.5 million wireless customers, and the
overall wireless teledensity rate is one of the highest in the world at 151
percent.  

The wireless industry was the first part of the Italian telecommunications
market to be liberalized, and the strong performance of the sector shows that
the market has benefited by the competition. The market was opened to
competition in 1995 when Telecom Italia formed Telecom Italia Mobile as a
separate wireless division and a second carrier, Omnitel, commenced operation.
Omnitel was acquired by Vodafone, the world’s second largest wireless carrier,
in 2000 and is the second largest player in Italy. 

In 1999, Italy issued operating licenses to Wind – a company that was initially
formed as a joint venture between ENEL, Deutsche Telekom, and France Telecom –
and Blu. In August 2005, Wind was acquired by Weather Investments, a company
that also owns Orascom Telecom of Egypt. Blu went out of business in 2002, and
its assets were split up among the other players. 

While the heavy penetration of wireless services leaves very few new potential
clients for wireless operators, it has placed Italy at the forefront of a new
wave of innovative value-added services. The wireless carriers of Italy are
known for aggressively rolling out advanced services such as television for
mobiles, multimedia messaging, and next-generation services. 

Key statistics for Italy’s wireless segment include:

• Mobile phone revenues of $11.3 billion (2018).
• Annual growth of about 1.7 percent projected through 2021.
• Per-person wireless revenues of $187.67 (2018).

Figure 4 shows how the revenues generated by the wireless sector have grown
since 2010, as well as how they are projected to fare through 2021.

Figure 4. Wireless Revenue Generation

Source: Statista

Next-Gen Services

Italy auctioned off 3G operating licenses in 2000 at the peak of
the hype for 3G. Five carriers each paid over $2 billion for the right to
provide these services. Telecom Italia Mobile, Omnitel, and Wind, which were all
already providing 2G service, secured licenses. The other two licenses went to
new players: Ipse, a company that never got off the ground, and H3G, which now
offers service under the 3 brand name.

The Italian government auctioned off 4G licenses in 2011 for a total of $5.4
billion to Vodafone, Wind, and Telecom Italia, but the carriers have been slow
to roll out service. Telecom Italia launched its LTE service in November 2012
and made it available in 20 markets by the end of the year. The other carriers
have been so slow to build out their networks that they are looking at working
together to collaborate on building out a single LTE network that they can all
share.

Broadband / Internet

Italy’s Internet sector has been marked by rapid expansion in the number
of subscribers and types of services available. At last
publicly-available projections, Italy had 14.5 million broadband
subscribers (2016), representing a penetration rate of about 24 percent.

Figure 5 looks at Italy’s Internet penetration percentage rate.

Figure 5. Internet Penetration Through 2017

Source: Statista

The country’s broadband penetration is low for Western Europe and ranks 30th out
of the 34 countries in the Organization for Economic Cooperation and Development
(OECD). Historically, the broadband market has been stifled by a lack of
competition and a lack of cable infrastructure, leaving DSL (and in many cases,
Telecom Italia) the only option. While robust competition in the wireless sector
has led to the introduction of innovative services, the opposite has been the
case in the Internet sector. Unfortunately, while there is still substantial
room for growth and DSL service is readily available, the market is still only
growing slowly.

Traditionally,

Italy has relied on ADSL because it lacks cable infrastructure, though Fiber-to-the-Curb and
Fiber-to-the-Home is more common than in other EU countries.

Market Leaders

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Telecom Italia has weathered several major changes – including
deregulation, ownership changes, and some major restructuring. Despite
these developments, the company is still the dominant provider in most
sectors of the Italian telecommunications market. In 2007, Telecom
Italia was acquired by Telefonica and a group of Italian investors for
$5.6 billion. This move provided Telecom Italia with strong financial
backing from one of the world’s largest telecommunications companies.

The acquisition also provided Telefonica with a foothold into the Italian
market, but Telecom Italia is still largely run by Italian nationals. Under the
terms of the acquisition, Telefonica was only allowed to appoint two people to
the Telecom Italia board of directors. The group of Italian companies had
final say on the chairman of the board. The Italian government had major
concerns about having an international corporation buy their national telecom
provider and urged Italian companies to get involved in the bidding process.
This announcement made other bidders, like America Movil of Mexico and AT&T, shy
away and protest through diplomatic channels.

In February 2018, Telecom Italia confirmed plans to spin off the networks
business due to pressure from national regulators.

Fixed-Line Market

Telecom Italia.

Telecom Italia now offers all of its services under the TIM brand. It is a large
provider of local and long distance services in Italy, although its market share
and total revenue has been gradually decreasing. TIM had 16.4 million broadband
lines as of the first nine months of 2017, per Agcom, marking an increase of
950,000 lines, year-to-year.

TIM’s most-recent marketplace leadership was last estimated, at that time, to
sit at about 46 percent, with Wind Tre, Fastweb, and Vodafone trailing at about
14-15 percent.

Like most incumbent service providers in Europe, Telecom Italia got its start as
a government-owned monopoly, meaning it owns the country’s copper
infrastructure. Its recent history, however, differs than many of its neighbors
because it has gone through several ownership changes, including an ugly hostile
takeover by Olivetti. That company eventually sold Telecom Italia to a
consortium of companies led by Telefonica of Spain, but that partnership was
eventually dissolved. Today, Vivendi is the largest shareholder with 24.9
percent.

Telecom Italia has long been plagued with heavy debt. To help push investment back into
the company, Agcom, the Italian regulatory agency, has been working on a plan
that would restructure Telecom Italia into two separate groups – a service
provider and a separate division that manages the company’s fixed-line
infrastructure. The network management group would then be forced to sell
wholesale network access to Telecom Italia under the same terms as it does to
reseller competitors. The government also hopes this deal would force the
company to team up with its competitors to jointly invest in upgrading its
network. However, Telecom Italia’s executive team and the Italian government
agree that market conditions are not right for this type of move at this time.
TIM also invested EUR2.9 billion between 2015 and 2017 to expand its fiber-optic
network to 75 percent of the population.

Its networks unit is set for spinoff.

Wind Tre. Wind Tre was born out of the 2017 merger of

Wind and Tre, and is regarded as another major player in the Italian fixed-line market. It has about
2.7 million (2018) fixed-line customers and another one million broadband subscribers
thanks to two fiber-optic networks: a nationwide backbone that spans 19,500 km
and a metropolitan-area network (MAN) that covers 4,200 km. The company was
originally created as a joint venture between France Telecom, Deutsche Telekom,
and an Italian energy company, ENEL. It is now owned by VEON (formerly
Vimpelcom) and CK Hutchison.

FastWeb. Fastweb is an Internet service provider that has
grown into another top landline carrier in Italy.

Vodafone.

Vodafone has been involved in the wireless sector since 1995, but it entered the
fixed-line market in 2007 when it acquired Tele2 Italy. This acquisition added
local and long distance calling as well as broadband Internet services to its
portfolio and positions itself as a full-service competitor to Telecom Italia.
Instead of operating its own network, the company resells access from
Telecom Italia.

Wireless Market

Italy’s wireless communications sector is advanced and competitive,
with four major players.

TIM.
TIM has 32 million subscribers (2018), and is regarded as the largest player in the market.
The company has a history of innovation in
the Italian mobile market. For example, it was the first company in Italy to
introduce multimedia messaging, and also the first in Europe to roll out an EDGE
network. Today, the company uses GSM, GPRS, EDGE, UMTS, HDSPA, HSUPA, LTE, and
LTE-A technologies in its network. TIM launched 4G services in late 2012 and built out its infrastructure
aggressively, beating its goal of covering 80 percent of the country a year
early. It had two million 4G customers by May 2015. TIM also offers LTE-A
service in 60 markets, including Venice, Rome, Milan, Naples, and Florence.

Vodafone Italy.

Vodafone is projected to have more than 24 million
customers, and employs GSM, GPRS, UMTS, HSDPA, HSUPA, and LTE network
technology.

The company got its start in 1995 as Omnitel Pronto, the first company to
compete against Telecom Italia Mobile, but it now bears the brand name of the
world’s second largest wireless company – a global organization with more than
446 million customers in Europe, Australia, and Africa.

Wind Tre.

Wind Tre emerged from the 2017 merger of #3 and #4 carriers Wind and Tre. The
combined provider now has nearly 29 million wireless subscribers. Historically,
the company was the first to integrate
several services into a single service bundle, and it has been at the forefront
of the market for wireless data solutions in Italy. Today, the company uses GSM,
GPRS, EDGE, UMTS, HSDPA, HSUPA, and LTE technologies in its network. It invested
$1.3 billion in building out a nationwide LTE network that is currently one of
the largest in the country.

The
following table provides a snapshot of the four Italian mobile carriers. 

Figure 6 looks at the major carriers’ wireless market share.

Figure 6. Italy Wireless Market Share

Source: Carrier Data

Broadband Market

DSL is the clear, dominant broadband access technology in
Italy, at one time having represented 98 percent of all high-speed connections. The country’s
major broadband providers recognize the country’s need for faster Internet
service, however, and they have all announced plans to upgrade their networks or
start offering direct-fiber access. 

Telecom Italia.

Telecom Italia became the first company to offer broadband Internet access when
it launched DSL service in 2000. It continues to leverage its strong brand and
its ownership of the local loop to maintain its role as the number one player in
the market.

Telecom Italia’s DSL network covers approximately 6,675 markets across the
country, and direct-fiber access is now available in and around Milan. The
company has been using this network to offer new service bundles that combine
broadband Internet access with IP television and VoIP services. So far, about
five percent of the company’s broadband customer base has signed up for these
packages, called “naked triple play” because they do not include POTS service.

The company has about 13.3 million broadband customers, making it the leading
provider by far.

Wind Tre.
Wind has about two
million broadband customers, and offers several
tiers of broadband access.

Fastweb.

Fastweb operates a DSL network that offers
broadband Internet access of speeds up to 6Mbps as well as VoIP and IP-based
television service.

Fastweb and the Italian government are involved in a joint venture called
Metroweb that is building out the country’s fiber-optic backbone network.

Market Trends

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The Italian telecommunications industry is one of the largest in Europe, but there is still room for growth.

The wireless sector is the most mature part of the industry. As mentioned
previously, the wireless penetration rate is at 151 percent, which is the third
highest in Europe and one of the largest in the
world. The wireless industry was one of the first to be opened to competition,
and, while prices have been historically higher than other European countries,
end users have benefited by having access to next-generation services.

With the market at the saturation point, carriers are looking for creative
ways to grow revenue. Many carriers are turning to service bundles: packages of
services that include wireless or land-line calling and broadband Internet
access on a single bill. These plans include flat-rate pricing for Internet
access as well as telephone calling. Telecom Italia and Wind are the only
companies who have their own fixed-line, wireless, and broadband operations, but
other companies are plugging gaps in their service menus through alliances.
Vodafone Italy, for example, has a deal in place by which it offers broadband
service through Fastweb. These service bundles should help bolster the
acceptance of broadband, which should grow significantly over the next couple of
years, if for no other reason than the country trails most of
Europe.

The Developing Broadband Market

The Italian government believes there is still room for growth with wireless
broadband services, especially with the wireless carriers rolling out 4G
services. Regarding the country’s slow migration toward 5G services, it was
recently reported that AGCOM is auctioning off 5G-related frequencies in
September 2018. This auction is expected to fetch about EUR2.5 billion (US$2.9
billion).²

Changes at Telecom Italia

Despite some of its recent changes, including the planned spinoff of its
networks business, Telecom Italia continues to lead the country’s telco sector.

Changed in the Mobile Market

The mobile market is likewise evolving. In 2017, for example, third-
and fourth-place carriers Wind and Tre merged operations, creating
more of an immediate threat to Telecom Italia and Vodafone.

Strategic Planning
Implications

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top of this report]

Italy is the sixth largest
industrial country in the world, and it has Europe’s
fourth largest market for the ICT industry. Growth in
this area over the past several years has been
consistently higher than in the rest of Europe. The
Italian Telecommunications sector has been fully
liberalized and is extremely competitive despite
domination by Telecom Italia in a number of key sectors.
Competition has, in fact, forced Telecom Italia to
compete more efficiently, and it is now one of the most
efficient legacy fixed line carriers in Europe.

Italy’s innovative
telecommunications carriers are developing new potential
markets, and the topography of competition is constantly
changing. Of particular interest in the broadband sector
has been the relatively sudden rise of Fastnet, an
emerging carrier offering voice, Internet, and video over
a single connection using DSL and Fiber to the Home. Its
capability to roll out a wide range of services over its
broadband network has raised the bar; Telecom Italia has
recently introduced a movie service over its DSL lines
and a video call service over its fixed lines. Tiscali
also provides an interesting example of a next generation
telco, operating as a “net centric” telco with
all services being offered over a proprietary IP network.
While it is the major carriers that are likely to benefit
most from advanced multimedia services, innovation
continues to develop from smaller firms.

Broadband opportunities
for content, components, and services are likely to
continue to provide significant markets in the future as both Italy’s
fixed and mobile operators strive for the multimedia grail of increasing service revenues in the face
of ever-decreasing cost-per-call. In addition to consumer
interest, there is pressure from the Italian government
and from the EU to provide broadband services. The
government will be using tax incentives to increase
broadband usage in the private sector and will also
increase broadband penetration in government. In general,
the Italian telecommunications sector remains an
excellent area for investment, particularly in innovative
products and services. Italian businesses and consumers
are technically savvy and tend to pursue the latest
technological developments.

Web Links

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• Telecom Italia: http://www.telecomitalia.it/
• Telecom Italia Mobile: http://www.tim.it/
• Vodafone: http://www.vodafone.it/
• Wind Tre:
  http://www.windtre.it/en/brand/wind

References:

¹ Fildes, Nic. "Telecom Italia to spin off network
business." FT. February 7, 2018.
² "Italy to auction 5G frequencies by end-September."
Reuters. May 23,2018.

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