Policy-making around network infrastructure always has to strike a balance between competition and cost efficiency, the latter essential to drive rapid roll-outs of networks to support national objectives related to digital divide, enterprise enablement and other topics. As operators have increasingly differentiated themselves based on their services rather than the underlying network coverage or quality alone, regulators have generally become more friendly towards shared or wholesale models. However, they still have to be very cautious about creating anything close to a monopoly situation in a key area of infrastructure.
Sometimes, policy seems to be made using out-of-date assumptions. The UK decisions in 2020-2021, to allow BT to buy the country’s largest MNO, EE, but to block Telefónica and Hutchison from merging their UK MNO subsidiaries, were based on hostility to reducing the number of MNOs from four to three. But it ignored the increasing importance of a balanced portfolio, including fixed, mobile and video, to the power of a particular telco. By gaining an MNO and becoming a converged telco, BT became a far more dominant player than a combined O2/Three would have been.
Now it is the Italian government’s turn to try to strike the right balance, this time over plans to create a single fixed line network in the country in order to accelerate expansion of broadband availability and quality. It seems that prime minister Mario Draghi and his administration will block this plan after all, amid fears that it would create a new monopoly.
The previous government, led by Giuseppe Conte, had agreed to a much-criticized plan to merger the assets of the two main fiber providers, incumbent Telecom Italia and wholesaler Open Fiber. The competitive problems arise from the fact that TIM would have owned the majority stake in the merged platform and would also be a retail provider – which makes the conflicts associated with BT’s ownership of wholesale and retail fiber businesses in the UK look minor by comparison.
TIM is already restructuring its fixed-line assets, largely as a precursor to the single network plan. It has begun the process of placing its fiber access network into a proposed new entity, FiberCop, in which it will have a 58% stake. Another provider, Fastweb, will own 4.5% of the business, in return for contributing its share of its existing joint venture with TIM, Flash Fiber. The remaining 37.5% will be held by investment firm KKR.
The creation of FiberCop is not under threat from regulators, but there are question marks over how attractive it will be if it does not prove to be a precursor to a merger with Open Fiber, the wholesaler set up in 2016 by state-owned lender Cassa Depositi e Prestiti (CDP) and utility company Enel. Enel recently announced it would be selling its 50% stake for €2.65bn, with Macquarie buying 40% and CDP Equity 10%.
Now, under pressure from the EU competition watchdog, the Draghi government has reportedly said it will not support a single network plan that would allow TIM to swallow up its major competitor, Open Fiber. Instead, he is backing a new plan, according to Bloomberg sources, that would see Open Fiber continue its network roll-out in rural areas, while the government would encourage competition in urban areas, as well as cross-investments between fiber and 5G.