The biggest news this week is that IPTV pioneer Fastweb is for sale, and although most headlines centered on the agreed buyout by tier one telco Swisscom, already counterbids are in the offing just hours after the announcement.
However the list of other bidders is short as they will have to have some €3.7 billion ($4.9 billion) handy in either cash or shares and be able to leverage the existing Italian-wide fixed fiber network that Fastweb has used to trigger one of the first European triple plays
The impression that you get from reading all of the coverage and quotes is that CEO and founder of Fastweb, Silvio Scaglia, is bored with the possibilities that fiber and DSL networks bring, and instead wants to focus on one of his many new toys. He is known to have sold a part of his Fastweb stake recently to fund the Joost rival, Babelgum that will be used to offer TV over the internet using P2P technology. So Scaglia wants out and just wants the highest price and the deal done fast.
The other famous Italian Silvio, the Berlusconi variety, and the previous Prime Minister of Italy, is rumored to be positioning his Mediaset media empire to counterbid, and that would make sense. However the determination of Berlusconi in recent major bids has been suspect. In December German broadcaster ProSiebenSat 1 was sold from under Mediset’s nose to Kohlberg Kravis Roberts and Permira Advisers in a deal that valued the company at $7.8 billion, but where the price paid was only for 50.5% of the shares costing €3.1 billion ($4.1 billion), so a very adjacent price to the Fastweb deal.
Berlusconi was interested in the German broadcaster primarily because his own media assets were being harassed by the Italian Prime Minister that replaced him, Romano Prodi, but since he has now resigned, the pressure to build interests outside Italy may have evaporated for Mediaset, making Fastweb more of an interest for diversification within Italy.
Similarly Vodafone may also be interested in bidding, although most of the financial market analysts have already said this is unlikely. Vodafone embarked on a quadruple play strategy in Europe when it revalued its German Arcor ADSL asset which it acquired when it bought Mannesmann all those years ago. Since then it has cut deals to work with BT broadband lines in the UK and with Neuf Telecom in France, and with Fastweb in Italy, to offer converged telephony. Later it plans to offer a full triple play in all of these markets.
If Vodafone feels that it will be denied a deal in Italy by Swisscom owning Fastweb, it might be tempted to make its own offer, despite the fact that Vodafone shareholders howl long and hard whenever it decides to make a bid for anyone. More likely however is that Swisscom has cleared this deal with Vodafone (which may have even prompted it to act) and that it may put up the funding to make Fastweb fully mobile, through an MVNO partnership with Vodafone in Italy. Vodafone occupies a close second place to Telecom Italia Mobile in Italy, with 80% of the mobile market shared between them. Last December, Swisscom purchased the 25% of its own mobile subsidiary owned by Vodafone for $3.4 billion, so is used to having dealings with the UK mobile giant.
Fastweb emerged over the last 7 years when began life through work sharing deals with electricity companies in Italy to lay fiber in the ground at the same time as laying electric cable. The company focused initially on fiber to the home in just one city, but once it proved that it worked has extended service all over Italy, using a combination of DSL and Fiber, offering broadcast IPTV and a very strong VoD offering, along with voice and internet access. Today it operates in the ten largest cities and has 1 million broadband customers and over 300,000 IPTV customers.
Israeli VoD supplier BitBand got its first break at Fastweb and still provides many of the VoD appliances and the core software architecture for VoD. Other IPTV companies that have a strong partnership at Fastweb include BitBand rival Kasenna, and DRM specialist DMD Secure.
An interesting side issue here is that the IPTV services of Swisscom are provided by Alcatel and Microsoft, while Fastweb has been one of the leading pioneers in IPTV, ahead of the curve and driving its own technology acquisition.
And IPTV services are deemed to be critical to the sustainability of fixed line services. While Swisscom may be dominant in its native Switzerland, it will inherit from Fastweb a tiny 11% market share in Italy, and any move to change the underlying Fastweb architecture would likely be met with mass desertions by its customer base.
Equally the loss of Fastweb as a customer might finish off any hopes BitBand has to continue as an independent company, and already we have heard rumors of it being in negotiations for a corporate sale.
Most likely the two networks will each be left alone, and in fact it is more likely that Swisscom, if it successfully acquires Fastweb, may learn about IPTV and the triple play, especially the marketing of it, from Fastweb, and it would make more sense for the fledging Swisscom architecture to alter and look more like the Fastweb architecture, rather than the other way around.
While it would be unlikely that Telecom Italia would be allowed to bid for Fastweb, Mediterranean telco Orascom, which snapped up Italy’s Wind Telecommunications almost two years ago, in a €12 billion ($14.45 billion) deal, might also step forward as a bidder.
In the agreed bid Swisscom plans to use debt to buy Fastweb, so shareholders will get cash. The deal needs over 50% of the shareholders to vote for it and Scaglia, who controls 18.75%, has already given it his blessing.
Swisscom has wanted to buy another operator outside of Switzerland for a long time but failed to land Eircom during 2005 because it was not approved by the controlling Swiss government, but it has said that it will approve this deal.
Swisscom will make sufficient funds available to Fastweb to pay for its ambitious Italian WiMAX network development, which is to create another separate broadband footprint over Italy.
2006 revenues for Fastweb were €1.26 billion ($1.66 billion) with around a 10% loss, but it is still growing rapidly.