Olivetti deal saves Infostrada

Nov. 1, 1997

Olivetti deal saves Infostrada

By EDWARD HARROFF

After seven consecutive years of financial losses, accumulated debts of approximately $1.25 billion, and a full-scale exodus of senior management, Olivetti has finally struck a deal that ends its financial crisis. With the Olivetti Mobile Telephony Services Holding BV (omts) joint agreement recently signed in Rome with Mannesmann (Germany`s second-largest telecommunications group), Olivetti`s management can now look to the future for Infostrada, Italy`s second-largest telecommunications group. A recent editorial in a leading Italian paper, la Repubblica, likened Olivetti`s move to that of a cat, which, falling down a steep stairwell, manages to land on its feet--avoiding the fatal impact at the bottom.

Founded in 1995 as a joint venture by Olivetti and Bell Atlantic, Infostrada is an alternative fixed-line carrier that offers a wide range of integrated telecommunications services--voice, Internet/intranet, data, international phone cards, and network outsourcing. It operates in the currently deregulated sectors of the Italian market and is preparing for full market deregulation, scheduled in Italy for January 1998. Infostrada`s network is built on leased lines from Telecom Italia as well as 1500 km of fiber-optic network from Societa Autostrade Telcommunicazioni (Autostrade). Infostrada has more than 900 customers, including some large corporations (e.g., Banco Ambrosiano Veneto). Infostrada`s network consists of more than 70 "points of presence" within Italy and boasts its own voice-switching centers in Rome and Milan.

Autostrade`s extensive fiber-optic network allows Infostrada to expand its network to approximately 3000 km. Autostrade has some 650 access points along the principal turnpikes that link all main Italian provinces. Currently, Autostrade`s fiber-optic cable carries data and video images for the Autostrade Information Centre and for the 125 variable Motorist Message Panels, along with the "Isoradio" sound program, weather stations, and Telepass services (an electronic ticketing offering for frequent highway users). Infostrada`s plan is to build its own fiber-optic Synchronous Digital Hierarchy loops using such advanced digital technologies as Asynchronous Transfer Mode and frame relay.

Commenting on the agreement to use the Autostrade infrastructure, Infostrada`s chief executive, Riccardo Ruggiero, says, "Our company is now ready to offer an alternative network. This is a unique position in the Italian market, where we are the first new telephone carrier ready to start operations. Any further delay in the deregulation of alternative telecommunications networks is a competitive handicap for us."

Lira and sense

The Italian fixed network services market was estimated in 1996 to be worth over 24,000 billion lira (US$13.5 billion). Telecom Italia and Infostrada are the only Italian operators, excluding international traffic. With the omts announcement, Olivetti and Mannesmann are clearly positioned to offer a full range of telecommunications services across most of Italy and make Info-strada the second national fixed-line carrier.

Mannesmann will pay 1100 billion lira (US$620 million) this year for a 25% share of omts, with another payment of 1250 billion lira (US$705 million) before March 2000 for a total shareholding in omts of 49.9%. Olivetti is committed to transferring to omts its shareholdings (direct and indirect) in Italy`s second-largest mobile operator Omnitel Sistemi Radiocelluiari/Omnitel Pronto Italia and its 66.7% controlling shareholding in Infostrada. The current value of these assets is 14,500 billion lira (US$8.16 billion) for Omnitel Pronto Italia and 300 billion lira (US$167 million) for Infostrada.

Infostrada foresees a total expenditure of more than 2000 billion lira (US$1.76 billion) over the next five years. Both parties will channel all future investments and new initiatives in the area of telecommunications in Italy, under this joint agreement, through omts. Olivetti has already announced a capital increase, and Mannesmann will participate in the underwriting equivalent to 25% of the total issue.

Of course, Mannesmann`s presence in the newly announced omts will probably not please other minority shareholders, like Bell Atlantic and France Telecom. Bell Atlantic has already announced its withdrawal from Infostrada. Also, the Mannesmann Group is a shareholder with Compagnie Generale des Eaux in Cegetel, the second-largest French telephone operator (see Lightwave, July 1997, page 1). Hence, France Telecom will probably also abandon its earlier joint venture agreement involving Infostrada. There was no immediate comment from France Telecom`s Paris headquarters concerning the company`s intentions.

Regardless of how these other shareholders react, Mannesmann and Olivetti have set the stage to become one of the leading European players in telecommunications through omts and to end the financial crisis that has hung over Olivetti S.p.A. q

Edward Harroff writes on telecommunications issues from Bellevue, Switzerland.

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