Troubled Italian incumbent operator Telecom Italia says that it will still spend what appears to be a huge €6.5 billion ($8.6 billion) upgrading its network to being an all IP next generation network, but when it announced this, at its recent result conference, it made it clear that what it was really doing was reining in expenditure and putting off the project.
The network architecture that it is shooting for will enable broadband access at speeds up to 50 Mbps and lead to High Definition TV services, running over its 60,000 kilometer network across 1,100 towns and cities by 2010.
But it was obvious that Telecom Italia will spend just €500 million during the next three years, and the rest all in one big deployment, which of course it can change its mind about, during 2010.
CEO Riccardo Ruggiero said that the investment would come from ‘capex substitution’ and major opex reductions, which of course means that Telecom Italia would have to find the cash from monies already allocated for keeping the network healthy.
Just €20 million ($26 million) would be spent in 2007, €175 million ($231 million) in 2008 and €309 million ($407 million) in 2009.
He also said that where existing capacity was in place, such as across Milan with Fastweb fiber, it would try to negotiate use of that fiber, rather than lay its own. In short this is a savage cutback in capex to make the operator look more healthy, which is likely to curtail its competitiveness in its home triple play market, certainly in HD.
What TI will work on its pushing DSL, which brings with it fresh revenues, to the rural communities, and by 2009 reach 100% Italian coverage, with some 67% of it using ADSL2+ and a tiny proportion through VDSL2+. Effectively this means long reach ADSL for rural, while the bigger towns are focused on higher speed services to reduce churn and price erosion.
There is clearly no real desire to commit to spend the last $6 billion until either TI is in a better financial state, with a higher share value or until its own cashflow improves, something best achieved through unspecified asset sales.
Telecom Italia said that it was still planning to take control of
Telecom Argentina, a step it can take by exercising a $7 million call option during 2009 on some stock owned by France Telecom in the holding company, to go with the 50% it already owns. It also re-iterated that it would not sell Telecom Italia Mobile in Brazil.
All of this was against a huge reduction in expectation for TI going forward, cutting overall growth to just above 1% for the next three years with margins at just 2% to 2.5%.
Ruggiero said the Group had already achieved cost savings of €1.4 billion ($1.85 billion) since last year, most of it since the recent change of management.