The Italian state lender Cassa Depositi e Prestiti (CDP) is reportedly in preliminary talks to buy a stake in one-time telecom monopolist TIM’s fixed-line assets.
The news that CDP, which already is a minority shareholder of TIM’s, is considering investing in the firm’s last-mile networks business comes at the same time as the Italian government is pushing Enel – the multinational energy company which owns TIM rival Open Fiber – to cut a deal with TIM in order to create a single broadband network.
While the government and TIM are both championing a merger as the best means of closing the digital divide separating Italy from the rest of Europe, common sense would indicate that the reverse is true. Indeed, it was only Open Fiber’s emergence as a genuine competitor of TIM’s which prompted any meaningful progress in the country’s internet infrastructure, shaking TIM out of years of lethargy which had seen Italy fall significantly behind its European peers in terms of connectivity. Reverting to a unified broadband network controlled by a single vertically integrated operator risks stalling Italy’s progress rolling out high-speed internet across the country—right as the coronavirus pandemic has illustrated how vital this connectivity is.
Progress at risk
Italy already has years of experience under a TIM (then Telecom Italia) monopoly, during which time the country languished at the bottom of the European leader board in terms of internet connectivity. Without a rival on the horizon and no major cable TV company to challenge its tenure – as happened in many other EU countries– TIM had no real incentive to plough its capital back into improving the national connectivity grid. What’s more, the company’s substantial copper cable assets mean it is opposed to a fiber optic overhaul, preventing Italy from fully embracing the latest technology.
In 2016, however, Open Fiber beat out Telecom Italia to take over Milan-based fiber installation company Metroweb and set out with a plan to sell its services on a wholesale-only basis (i.e. to third-party internet providers rather than end users). This sudden threat to TIM sparked a flurry of activity, with Italy becoming one of the fastest-growing markets in Europe for the installation of fiber-to-the-home (FTTH). Indeed, the latest Digital Economy and Society Index (DESI) indicates that national coverage of ultra-broadband leapt up to 30% from 24% last year, although it’s still behind the continental average of 34% and ranks fifth last in terms of fiber lines laid per capita with just 4.1%.
Clearly, there is more work to be done – which is why the government’s insistence on merging TIM and Open Fiber comes at such an inopportune moment and represents a misguided move if the goal is to narrow the gap with other European countries. Angelo Cardani, the head of the Italian competition watchdog, didn’t mince words when he advised that returning to a single network controlled by TIM would be a “backwards step”.
Competition conducive to progress
Indeed, it’s not surprising that Italian competition authorities are perturbed by the proposed merger and would be extremely unlikely to approve a return to a single, vertically integrated network. For one thing, handing TIM a second chance at a monopoly could be considered an indirect form of state aid to the telecom operator. What’s more, TIM was just fined €116 million in March for abusing its dominant position in the broadband market—specifically, the onetime monopolist was accused of deliberately slowing down the rollout of fiber-optic broadband in underserved areas in order to stifle competition. These delaying tactics have had a severe effect on Italy’s so-called “white areas”, or areas characterized by current market failure. Italy had hoped to connect 80% of these zones to a broadband grid by the end of 2020, but—in part due to TIM’s anti-competitive behavior—this target is unlikely to be achieved.
TIM’s machinations to hold onto its dominant position seem even more retrograde when compared to the increasing liberalization taking place in most other European countries. France, for example, has four major fiber operators plus a number of regional players, and last year saw relative newcomer Free leapfrogging former monopolist Orange in terms of new FTTH installations. French telecom regulator Arcep has been clear that the sharp acceleration in France’s FTTH rollout is due to the “lively competition” among the country’s network operators.
It’s a similar story in Spain, where tight regulations are forcing the four main operators to work together on removing bottlenecks, optimizing existing infrastructure and making their services as widely available as possible. The results tell their own story: Spain’s fiber-optic network is now the widest in Europe, as some 63% of Spanish homes have FTTH access—significantly higher than the EU average of 23%.
Closing the gap
The emergence of competition from Open Fiber has afforded Italy a chance to replicate the success enjoyed by Spain and France, which each have at least four operators jockeying to roll out the fiber lines necessary for the digital transformation. The government’s predilection for a single broadband network helmed by TIM, however, threatens to derail that chance. Not only does the ongoing wrangling over a deal between TIM and Open Fiber delay investment into the national infrastructure indefinitely—even if the two sides managed to come to terms, legal wrangling over whether the alliance was acceptable under antitrust rules would cause further holdups—the potential merger also threatens to remove any impetus to swiftly install the infrastructure needed to prepare Italy for the digital future.
If the Italian government is really serious about its goal of connecting at least 50% of all Italian households to ultra-fast broadband by the end of the year, it needs to look past the short-term profits that a vertically-integrated network would bring for TIM and see the bigger picture. Antitrust authorities and the experience of its European peers have made it clear that encouraging rather than stifling competition is the only way in which Italy will take its place at the forefront of the continental and global connectivity race.