Like Spain with high speed rail, Italy is hoping that investment in broadband infrastructure can help the country climb out of the economic doldrums in the longer term. In the short term though, it looks likely that its grand plan for broadband everywhere could have a negative economic impact because of its knock on effect on incumbent Telco Telecom Italia. It looks like the government and especially prime minister Matteo Renzi have decided to sacrifice the Telco to the cause of cost effective broadband development exploiting the existing electricity distribution infrastructure.
The government has calculated that this will reduce the cost of fiber deployment by around 35% by avoiding the need to build new ducting. But by providing an effectively subsidized source of competition it will hit Telecom Italia hard at a time when it is already reeling, partly on account of the country’s sluggish economy, with domestic product growing only at 1% for the last quarter of 2015. Its CEO Marco Patuano resigned in March 2016 after disagreements with the company’s board and its largest shareholder Vivendi over the 2016-2018 strategic plan.
Then last week Telecom Italia was reported to be considering cutting up to 15,000 jobs as a pre-emptive measure to cope with the reduced revenues likely as a direct result of the broadband plans involving state-controlled power utility Enel, which will build the proposed fiber optic broadband network. Then as further confirmation of how the wind is blowing, former Telecom Italia network boss Stefano Paggi has just joined Enel’s new Open Fiber division, created last year to build the new country-wide ultra-broadband fiber-optic network infrastructure.
Paggi was responsible for Telecom Italia’s Open Access networking unit and was in fact replaced by Carlo Filangieri who had been leading the Telco’s own Fiber to the Home (FTTH) project. It is this project that has been jeopardized by the government’s new broadband plans marshalled through Enel.
The big idea is to harness private investment to overcome the problem that has dogged other utilities, which is how to reach people in more remote areas. It is a kind of public/private finance initiative, with Russian telecom firm VimpelCom’s Wind Group and Vodafone Italia recruited as partners.
Their chief executives were present at the launch event in Rome this month when Renzi announced that the government’s strategy was is to exceed the objectives of the Europe’s digital agenda and bring high-speed broadband at speeds of 30 Mbps to the entire country by 2020, as well as 50 Mbps to the more urban half of the Italian population. “For the first time we have a strategic path,” said Renzi, adding that all pending rollouts would be unblocked and an initial €2.2 billion had already been allocated to digital divide areas. He added that the tenders for these areas known as clusters C and D, which have been unable so far to attract private investment, will be launched on 29 April.
At the event Enel revealed its more immediate plans costing €2.5 billion to bring ultrafast broadband to around 7.5 million homes in 224 Italian cities, the areas known as clusters A and B, via the new Enel Open Fiber venture. This would begin in Perugia, Catania, Cagliari, Bari and Venice, followed late 2016 by Florence, Genoa, Naples, Palermo and Padua. This is where the commercial arrangement with Vodafone and Wind comes in, with a pledge for the first fiber-optic services to be available by May 2017 in Perugia.
Enel CEO Francesco Starace did extend an olive branch to Telecom Italia after emphasizing that Enel Open Fiber would operate only on a wholesale basis and would not compete with others. He invited Telecom Italia to participate not just as one of the retail providers but also to help build the network, perhaps by offering its ducting.
However, this would relegate Telecom Italia to a subordinate role rather than primary infrastructure provider and leaves its current FTTH project in the air. After all homes do not need more than one fiber connection. Besides Starace indicated that partners would mainly be participating at a financial level by providing investment rather than infrastructure. As a result, Telecom Italia risks losing 5 million wholesale clients on top of potential impact down the road on retail customers.
Among other possible project partners are broadband and pay TV provider Fastweb and Metroweb, which has already installed fiber cable. In fact, Metroweb laid the fiber for Fastweb’s FTTH service in Milan.
The initial phase of Open Fiber connecting 250 large Italian cities has now gained regulatory clearance so that cabling can begin in May. Enel also plans to roll out fiber-optic networks using the same model in at least 20 other countries where it is active, which includes the US, Canada, Brazil and Russia, as well as Spain and five other European states. As such Enel has proved an Italian success story since its privatization in 1999, although the government still has a 25.5% stake.