Bassanini: "Tim defends his network but the real ultrafibre is that of Open Fiber"

The controversy over ultra-broadband and the fiber network? “I am not between Open Fiber and Tim but between the government, Infratel and Tim”. But which fiber are we talking about: the one that reaches homes and offices (FTTH) or the one that stops at the telephone cabinet (FTTC), saving the copper twisted pair? “These are small-scale discussions. It's an old debate. When you build an infrastructure, you have to look forward to when the network will be completed. And the future will not be tens or hundreds of Megabits. The future will be of the Gigabit society: a thousand Mega and beyond. From 2020 onwards, we are moving towards a world in which either you have a 100% fiber optic network and 5G (which in turn requires a capillary fiber optic backbone) or you are out. This is the reality of the future and this is the choice that the government has made. The rest is talk." 
 
Franco Bassanini, president of Open Fiber (OF), the company 50% Cassa depositi e prestiti (Cdp) and 50% Enel that launched the challenge on the fiber optic network by taking over Metroweb, knows what he's talking about. He was Minister of Public Administration in 1996 when Ernesto Pascale, then CEO of Telecom Italia, launched the Socrate plan, the first with the ambition of providing Italy with a fiber optic network. At that time Bassanini aimed at digitizing the Public Administration to rejuvenate the brontosauric Italian bureaucracy and for this he hoped for a new generation TLC network. Until 2015 he was president of CDP and from there he followed the issue of infrastructure live. As a consultant to Palazzo Chigi, he blessed the birth of the Government's Ultra-Broadband Plan which, together with the birth of Open Fiber, is putting Telecom Italia under pressure on its most significant asset: the copper network, that last mile on which the he former monopolist boasts an exclusive record. An asset, however, destined to decline sooner or later. About "when" the game is played. How will it end? Is there room for two ultra broadband networks? And the business model designed by OF – which envisages an operating breakeven already in 2018 and a profitability of 80% on around 1 billion in revenues from 2026 – is holding up to Tim's advance (which is preparing for probable departure of Flavio Cattaneo) that has stepped up investments in its network? We ask Franco Bassanini who answers in this interview with FIRSTonline. If Tim relaunches on the white areas, Open Fiber does not back down: "Our goal is to provide a 100% fiber network throughout the country and we are a candidate to be the backbone for the future 5G mobile network". 
 
The story of the fiber in Italy is very articulated: between the fully competitive "black" areas or even areas A and B where operators compete for customers; the "white" market failure areas or even C and D where the State will instead arrive with the tenders launched by Infratel; and the gray ones, less competitive where in any case public intervention is not allowed, it is precisely the latter that risk suffering the most. How is Open Fiber's plan for the construction of the fiber optic network going? 
 
“We are proceeding in line with the times and objectives of the industrial plan which concerns medium and large Italian cities. In addition to Milan, Turin, Bologna which we acquired with Metroweb, we have identified 10 other cities - including Perugia, Naples, Cagliari - where we are already working on building the network. Since July we have added 81, in the planning stage, to reach a total of 271 cities covered in black areas. It's an important plan, it will affect 9 and a half million homes that we will connect by FTTH fiber optics, so even inside homes or offices. Alongside this program is the Infratel plan for areas C and D. We won the first tender in 6 Regions, for the second tender we had a pre-assignment but it will be awarded in a few weeks. I emphasize that we have gone well beyond the objectives set by the tenders: we cover 90% in FTTH going far beyond the 100 Mega speed required by the tenders. The remaining 9% will be via point-to-point wireless. Infratel's first tender involved the construction of infrastructure for an estimated cost of approximately 1,45 billion euro; Open Fiber offered a 19% discount, with an amount of around 1,180 billion euros. As a result of the tender, the overall savings obtained by the State was approximately 53% of the tender amount because the Open Fiber offer (as per the tender regulations) was "discounted" by the expected revenues and was, therefore, attested on a value of approximately 675 million euro. 
 Tim had proposed 1,080 billion. The State has saved more than 750 million which can be used to support demand through bonuses to households and businesses, thus facilitating the migration from copper to fiber. However, it is true that a part of gray areas remains, out of the 271 cities, in which we have not defined the investments: some were to be covered by Tim who, however, seems to have decided to partially divert his development plans to some white areas, aiming to remove the potentially more profitable ones”. 
 
 One could say that these are the contingencies of a market economy. But if Tim arrives before Open Fiber with Fttc (Fiber to the cabinet) technology, does he still support your business model in white areas? And how are the banks that have to give you the loans reacting? 
 
“I start by saying that the conflict that arose with Tim's change of course is not between us and them. If anything it is between the government and Infratel on one side and Tim on the other. The government plan was agreed point by point, we can say, with the European Commission after a double consultation with the operators, carried out in 2015 and 2016. The tenders of the first two Infratel tenders were made when no operator had declared their intention to invest in those areas defined precisely for this white. If Tim changes course now, the government risks having to spend more to achieve coverage targets on the remaining, less profitable, white areas. This is why he has started a procedure: to establish whether or not this change in progress is legitimate. Various institutions will have to pronounce: the Antitrust, the Communications Authority, the Tar and perhaps even the civil court if there were any appeals for damages. Open Fiber is protected by a contractual clause which provides for the rebalancing of the economic-financial plan of the concession if the initial conditions change through no fault of ours. The banks know this perfectly. But precisely for this reason the Government, and therefore the taxpayer, could suffer damage. Which the competent authorities could judge illegitimate". 
 
So what could happen? 
 
"Basically, if Tim does not follow up on what he said he wanted to do on some white areas or loses on the legal front, everything remains as it is and the State saves 730 million (compared to 1,4 billion in the first tender) which it will be able to allocate to vouchers in the black or gray areas. Europe seems in favor of considering vouchers support for demand and therefore not considering them state aid: moreover, there are precedents in this sense. If, on the other hand, Tim goes ahead and wins the legal match, then we will ask for the rebalancing of the concession and the resources for the vouchers will have to be found elsewhere". 
 
How do you think it will end? 
 
“My personal opinion is that eventually the problem will be addressed and resolved. The Government has already announced a redefinition of the white areas in the Regions of the third tender, Puglia, Calabria and Sardinia, which has not yet been published. With regard to the other two tenders, however, if Tim leaves gray areas uncovered, in which he decides he no longer wants to invest, unlike what he had communicated in 2016, then the government will probably have to provide for an additional tender to include them in the white areas. As far as we are concerned, if there were any "gaps", our perspective is to fill them, obviously verifying the overall profitability of our investment. But, when fully operational, we intend to provide an FTTH network throughout the country and we are a candidate to be the backbone for 5G mobile". 
 
 You point out that the Open Fiber network is fiber to homes (FTTH). Tim also calls the network that reaches the phone booth (FTTC) fiber. Isn't that confusing? And above all, what changes with one or the other technology for families and businesses from the point of view of services? 
 
“This is an important point. Verizon, in Manhattan, is putting FTTH fiber everywhere and contending for customers with cable TVs. These are switching to the Full Docsis 3.1 standard which will guarantee 10 Gigabit bandwidth both in uploads, for example when sending a film, and in downloads, when you download it. In Italy we do not have cable TV. For TV, we have digital terrestrial which has absorbed frequencies which, however, will have to give way to mobile telecommunications by 2022. Then we will have a single network to transmit television programmes, communicate, send data, manage the cloud of small and large businesses, connect objects to each other. It is clear that only a 100% fiber network will be able to guarantee this level and quantity of connections which will be accelerated by the arrival of 5G. 100% fiber is not only faster, it is more stable and reliable, consumes less energy, reduces maintenance costs and reduces breakdowns. There is no ADSL that can guarantee the same: but can you imagine a car without a driver or with assisted driving if the connection to the network fails due to a breakdown? That the mixed fiber plus copper network is offered to consumers with terms such as superfiber, ultrafiber or similar is misleading and we have submitted the matter to the Antitrust. It's like selling a bottle with 30% olive oil and the rest palm or seed oil as olive oil. If there was a law prohibiting it, that would be even better. In France, after an appeal filed by Xavier Niel of Iliad, only FTTH can be advertised as a fiber. All the rest must be presented as a mixed network and it is necessary to specify where it arrives. It would be useful to clarify here too: we reach homes and offices with 100% fiber, others stop at 30%. And it's not the same thing." 
 
Going back to funding, how are they going? 
 
“We are negotiating with the banks a 500 million bridging loan that will come in close terms which is part of the 3,5 billion “jumbo” loan needed to carry out the bulk of our plan in the black and white areas, net of public funding. This financial architecture also includes a loan of 500 million from the EIB – in an advanced stage of definition – as part of the Juncker plan. The negotiation with the consortium of banks that will ensure the "jumbo" project financing is underway, we expect to close at the end of the year or in the first months of 2018". 
 
F2i's option to enter Open Fiber's capital fell in January, are you thinking of reopening entry to equity for new institutional investors? 
 
“Both the F2i option and the entry of new partners will come back as soon as the financing process is completed. There are several investment funds specialized in infrastructure that have expressed interest in entering the capital, when we will open it, with minority stakes”. 
 
Could there be the French BPI whose CEO, Nicolas Dufourcq, came to Rome in recent days? 
 
"Funds from many countries have come forward but I don't know that BPI is among them because BPI is a shareholder of Orange, the French Telecom, and they usually prefer to invest in their own homes". 
 
Summing up, is there room in Italy for two fiber optic networks? You mentioned compatibility in up to 10-12 cities. What happens in the others? 
 
“In a report to the Digital Regulatory Forum in London, I limited myself to quoting the consensus of analysts and not making my own forecasts, as is clear to anyone who has read that report: and I also observed that in other countries infrastructure competition there is, between TLC network and cable TV networks. That said, it is a fact that investments in Italy must be accelerated. Is the future in the hands of those who create a network to make it available to all operators or does everyone proceed on their behalf? In the world of infrastructures, in general, the increasingly marked distinction between those who build the infrastructure and those who offer services is affirming itself everywhere. The reason is clear: the shareholding structure of service providers is mainly made up of institutional investors who demand adequate returns in the short term. Those who invest in infrastructure, such as pension funds, insurance companies, development banks, on the other hand, move with a long-term logic. If the analysts' estimate were true, I hypothesize three possible scenarios: either an agreement is also made in Italy to divide the territory as Verizon and AT&T did in the United States, or one of the two contenders wins the competition over the other, or some agreement to create a single network that is not vertically integrated, at the service of all 320 Italian service providers. However, I would like to point out that in Italy there is no cable TV and when the Digital Terrestrial experience ends, you will have to choose a TLC network. We'll see which one is cheaper and more reliable. For now, it can be said with certainty that the entry into the field of Open Fiber has forced Tim to abandon his old mantra ("There is no demand in Italy, therefore there is no need to invest in fiber") and to accelerate investments that otherwise would have continued to condition the start of a future demand, also to protect its understandable and legitimate corporate interest in prolonging the value of its copper network and the dominant position associated with the ownership of this network for as long as possible”.