2010 Italy - Telecoms, IP Networks, Digital Media and Forecasts

Italy’s fractured NGNs needing greater regulatory control

BuddeComm’s annual publication, Italy - Telecoms, IP Networks, Digital Media and Forecasts, provides a comprehensive overview of the trends and developments in the telecommunications and digital media markets in one of Europe’s key telecom markets.

Italy has the fourth largest telecom market in Europe. The country has been deeply affected by the economic crash which has continued to linger since mid-2008. In 2009, GDP fell by about 5%, though growth in both 2010 and 2011 is expected to recover to about 1%. The reduction in household spending was about 2.5% in 2009 and investment in fixed networks fell by almost 17%. There remains deflationary pressure on communications services as operators struggle to meet their investment commitments while consumers have reined in non-discretionary spend.

According to the regulator, in 2009 the telecoms sector grew 1.7% year-on-year compared to a European average of -0.8%. In the fixed-line telephony sector, affected by fixed-mobile substitution and consumer switch to voice-over-IP services, 2009 marks the first year in which lower voice revenue (down €13.3 billion year-on-year) was not compensated by growth from data and Internet services (only €9.6 billion).

Although there are a number of fixed voice operators, just four of them control 90% of the market in terms of retail revenues. Telecom Italia’s share in the fixed voice market has fallen to about 60%, while its share in the lucrative broadband market is about 56%.

Italy’s Internet market continues to grow steadily, with Internet user penetration of about 58% by mid-2010 and broadband penetration approaching 24%. The ADSL broadband sector has also shown steady growth in the absence of competition from cable networks. FttH projects are concentrated among the main cities, although there are a number of municipal projects which supplement the efforts of telcos.

The deployment of NGNs is relatively nascent in Italy. The government’s contribution to developing a national All-IP network, originally muted at €1.47 from public and European Community funds, has been scaled down as a result of its own budget restraints. The regulator has formulated network sharing frameworks among the chief players, but thus far Telecom Italia has guarded its business independence and is pursuing its own €6.5 billion NGN investment while a consortium including Fastweb, Wind and Vodafone are building an NGN of their own, at an initial cost of €2.5 billion to cover 15 cities. The potential for network duplication, combined with the debt burden carried by the incumbent, risks derailing these plans unless the regulator shows sharper teeth in forcing through the same measures successfully adopted by other NRAs.

In the mobile sector Italy has one of the strongest markets in Europe, with mobile penetration far above the EU average and a large 3G subscriber base. The market was worth an estimated €17.2 billion in 2010. Market saturation has led to slower growth in recent years, while regulated MTRS and roaming fees, combined with fierce competition among players, will further lower revenue during the next two years. From 2012, subscriber contracts based on LTE will enable high-end data services to counter-balance the continuing decline in voice revenue.

Key telecom parameters – 2009; 2011

(Source: BuddeComm)

Market highlights:

• Italian MNOs are progressing with LTE trials with a view to launching commercial services in 2011 and 2012. Telecom Italia plans to cover Milan and Rome initially, supplemented by Evolved HSPA.
• Most investment by MNOs has gone to providing HSPA and LTE software upgrades and improving the performance of GSM networks. While the number of mobile broadband subscribers has increased, this has yet to translate into greater mobile data use or revenue. The number of 3G subscribers is expected to reach some 62 million by 2015, representing almost 70% of all mobile subscribers.
• Fibre networks are concentrated in the main cities, which are cheaper and easier to service. There were about 385,000 active FttH connections in mid-2010, while the number of connected households reached about 2.5 million. Regulatory controls are required to push fibre further into the regions, or here is a risk that Italy will become a two-tier broadband nation.
• MNOs have busily supplemented rural areas underserved by fixed-line broadband with wireless solutions. Vodafone’s HSPA+ network, benefiting from a €1 billion investment, is aimed at reaching 1,800 towns having no wireless broadband access by 2014, providing at least 2Mb/s.
• ASO has kept to schedule, though digital switchover affecting the last regions may be brought forward to 2011 given the high proportion of residents in these areas which have already switched to digital TV. In line with developments elsewhere in Europe, digital dividend spectrum will be used primarily for mobile broadband services when available.

Henry Lancaster

November 2010

Data in this report is the latest available at the time of preparation and may not be for the current year.