Skyrocketing investments, rock-bottom prices, overcrowded market. It is a difficult equation, almost a paradox, that Tim, Vodafone and WindTre are faced with. The challenge of mobile telephony, where Iliad has landed with bargain offers accelerating the race to the bottom and conquering 2 million customers in a few months, is measured against the 5G revolution, the new standard that will make the Internet of things and cities possible smart. No one wants to be left out and the tender for frequencies, which has just ended, will unload on companies an additional cost of 6,5 billion, which the Italian State, always ravenous, will collect between now and 2022. An expense that 80% will be borne by of the two Big Vodafone and Tim. If we then look at fixed telephony, the equation is just as difficult: on the one hand, the giants of the Web – Google, Facebook, Apple, Amazon – appropriate services and contents without investing a single euro in the networks that make them possible; on the other hand, the optical fiber revolution, driven by the entry into the field of Open Fiber (50% Enel and 50% Cdp), has reopened the access game. The unresolved node of the Telecom network, between spin-off and possible agreements with OF, is a further boulder on the road of Italian telecommunications.
The extreme synthesis of all these ongoing movements and transformations is this: competitive pressure at its maximum, prices and revenues at an all-time low. How sustainable will this model be? What returns are to be expected on the colossal investments planned? And what industrial model will they allow to build? At stake is a key sector and ultimately from here passes the future development of the country. Not only in Italy. In September, the CEO of Orange - the equivalent of our Tim - sounded the alarm: when "there are offers for less than 10 or even 5 euros for a monthly subscription to ADSL - he said during a hearing in Parliament in Paris – the national plan for ultra-broadband in France is weakened or even endangered”. But is it really so? Partly yes, partly not.
Returning to Italy, the numbers are quite impressive. The ARPU (average revenue per customer), used as a benchmark in the sector, has decreased for everyone in the mobile sector. According to a Mediobanca R&S survey presented last March, in Italy it fluctuated between 12 and 14 euros in 2016 but is collapsing below 10 euros on the back of the price war unleashed by Iliad. Figures that compare in Europe with Arpu of 32 euros in Switzerland for Swisscom, 22 euros in France for Orange and 21,6 euros in the UK for Vodafone itself.
MORE INVESTMENTS, LESS REVENUES
Other numbers help to understand. Italian telecommunications are worth 32,2 billion. Stopped at the stake for years, in 2017 i overall revenues recorded modest growth of 0,9% corresponding to 300 million or a little more. Prices are plummeting: taking the utilities price index to 100 in 2010, electricity stands at 129 in 2018, gas at 108, waste at 125, urban transport at almost 122 and communications at 89 In other words, only telecommunications services have prices lower than in 2010. All the others have increased and some not even so little.
The iInvestments, on the other hand, rose by 7,5 billion (not counting 5G) and have focused on the ultra-broadband network. And so in the latest Agcom survey it can be read that the copper network is losing connections (-14,5%) outclassed by the mixed fiber-copper network (+90%) driven "by the wholesale services offered by Tim" and by the pure fiber network which has seen growth of 47 % the number of accesses, "driven by Open Fiber services".
Data traffic is driving the sprint: between 2013 and 2017 it grew by over 250% on the fixed network and quintupled on the mobile network.
MORE GIG, LESS EURO. WHAT ABOUT THE QUALITY?
Faced with the escalation of offers "more Giga, less euros", now the psychological threshold of 10 euros to talk, surf, chat or downloading videos seems insurmountable, generating in the customer the conviction that breaking it corresponds neither more nor less than to a theft perpetrated its damages. This is not the case or at least it is not always the case: having a mobile phone connected to the 4 or 4.5 G network is a different thing than having it connected to 3G even if many advertisements overlook this point. Upon the arrival of Iliad, Vodafone and Tim they responded with Ho and Kena, their low-cost operators. But the real battle unleashed on the premium brands with raises on the amount of guaranteed bandwidth. Suicidal raises? To interrupt this downward spiral, Vodafone, which has made the quality of its mobile network its strong point, seems to have taken a path against the tide. And a few days ago it launched an offer for 40 euros which will be combined with the activation of the 4.5 G network: connections over 1 Gigabit per second (minutes and unlimited messages), starting on November XNUMX from Rome and Milan and then expanding on the whole national territory. Change the philosophy: relaunch yes but on the quality of the network, and get paid. Tim has chosen a different path: in September he threw the stone in the pond with an offer for 5 euros (50 Gigabytes and unlimited minutes) reserved for Iliad customers who migrate to his network and he increased the dose with a promotion for unlimited Giga only for the month of October. The strategy, someone observes, could open the door to competition for higher value services: free bandwidth and paid services (particularly video). Or bring a transfer of customers to him, in the short term. Time will tell who is right.
To learn more: Vodafone pushes on the new network, Milan queen of 5G
OPEN FIBER, THE NEW NETWORK AND THE GIANTS OF THE WEB
Even on the contents, however, the battle is more open than ever. The advance of the Web giants with the acquisitions of WhatsApp, Messenger, YouTube etc has led to a concentration of power never seen before and has undermined the model of the traditional vertical operator. Mergers worth tens of billions of dollars have taken place on content (Comcast-Sky, Att-Time Warner, Vodafone bought Liberty Global in Germany) and investors seem to have already decided who won the battle: Google, Apple and Facebook capitalize on Stock market more than the whole world TLC system.
Returning to Italy, competitive pressure and the need to transform, reduced Tim's target price and compressed the stock on the Stock Exchange to values never seen before. The governance problems with the standoff between Elliott Fund and Vivendi certainly didn't help and remain a big question mark. But Vodafone Group in London also suffered a depreciation.
What will be the final scenario then? Looking ahead, an unbundling of activities is likely – network on one side, services on the other – and it is on this that Open Fiber is betting: a single fiber-only network on which to pass all the operators is more efficient and allows to reduce costs by avoiding wasting precious resources. If this is true, it is equally true that the network needs customers to produce revenue. Tim undoubtedly has a strong point in his 10,85 million landline customers and a market share of 52,6%. Another strong point is the copper access network: Mediobanca Securities values it at 15 billion and it is still early to throw it away. A good thing, however, that as optical fiber gradually becomes more widespread, it loses value: according to Accenture it would have already dropped from 32% to 17% of the total value of the infrastructure, between 2012 and the end of last year. Certainly to completely shut down the copper network, it will take years. But sooner or later it will happen. And what will the country's network and development model be like? Will the Open Fiber model or that of a single company for the network prevail, which at the moment nobody seems to want? A third of the country is proceeding with two parallel networks, another third – that of Infratel public tenders for market failure areas – is being implemented by Open Fiber. It is on the last third – that of the gray areas, fast enough but not too fast and yet populated by respectable industries, that the final battle will be played out. But to go where? It would be sensible to strike a balance between the needs of consumers to obtain low prices and efficient services and that of industry to ensure healthy development. The Authorities (primarily the European one) have so far pushed the scales on the side of the customers and have not affected the monopoly of the Web giants. In the past, the Italian government has accumulated a long list of errors while the current yellow-green majority does not go beyond generic declarations. After all, development is at stake, but few seem to really care.
To learn more Open Fiber advances, Tim wants to go alone
