Italian-style fiber competition looms for 1998
Telecom Italia--like all other European telecommunications giants--is destined to lose its national monopoly in 1998. Most analysts agree that the company`s Socrate Project--a broadband network scheduled to cover 10 million homes with fiber-to-the-home and fiber-to-the-building by 1998--is the company`s attempt to lock into the market for as long as possible (see Lightwave, April 1996, page 18).
Telecom Italia is controlled by the state-owned holding company, STET of Italy. "The company wants to be the sole implementor of fiber-optic networks," says Paul Lee, a consultant specializing in telecommunications at Ovum Ltd. in London and joint author of a report titled New Opportunities in European Telecommunications: The Impact of Liberalization.
According to Lee, "Telecom Italia is extremely rich and, to a large extent, can do what it wants. The regulators are not regarded as independent. Italy is probably the most complex country in Europe for telecommunications because it`s unpredictable. There are so many factors, and the regulatory situation is anarchic." Given those conditions, there is hardly any cable TV in Italy (satellite has made only small inroads), and many people are questioning the real motives behind the investment.
William Laurent, analyst at Robert Fleming Securities Ltd. in London and coauthor of a report on Telecom Italia, points out, "We would argue that there is not, at the moment, a market need for broadband cable in Italy--and perhaps not for satellite either. The development of cable and satellite in Italy stems from regulatory pressure and technology push."
Driving forces behind cable TV
If Italians already spend more time than other Europeans watching TV, and the TV they watch is plentiful and free, then the driving forces behind a fiber-optics-based cable-TV system are unclear. "Telecom Italia`s interest in developing a cable-TV network in Italy would seem to be explained by the company`s desire to discourage the development of competition in telephony," theorizes Laurent.
National compliance with European directives such as the one calling for liberalization of the telecommunications market in 1998 is not enforceable, according to Lee. He adds that if a country wants to drag its feet, not much can be done, and he claims that Telecom Italia is notorious for working this way. Liberalizing its data networks took five years longer than it was supposed to. In 1994, Telecom Italia was cited for more than 100 infringements of European Union (EU) telecommunications regulations.
Telecom Italia will implement Phase 3 of the Socrate Project. This phase is "conceived with a view of integrating on a single platform those narrowband services [telephony, Integrated Services Digital Network and data lines] already supplied under the traditional network," says a Telecom Italia spokesperson. With such a vast network, this could put a potential lock on most of the market. This will pose a challenge to would-be players in the Italian telecommunications landscape and to European regulators dealing with liberalization.
Telecom Italia is the carrier for the Socrate Project network, but another STET company, Stream, is expected to be the operator. Lee says the implementation of Stream as the network`s service provider could be interpreted as a "breach of the rules" because the state would be strengthening its monopoly rather than moving toward the 1998 goal of complete liberalization.
Other players could potentially be important fiber powers in Italy. Lee says the most likely candidate is Olivetti, which has a number of joint ventures, including Infostrada for alternate telecommunications services with Bell Atlantic, France Telecom, Deutsche Telekom and Sprint; Videostrada for cable TV with US West; and with IBM for a global alliance in "advanced business and consumer services via communications networks worldwide."
Videostrada, which was formed this past fall, wants to deploy a fiber-optic network and is currently applying for cable-TV and interactive services licenses, says Lee. The problem is that the licenses will not mean much until the cable laws are resolved.
Regulatory questions remain
As Lee points out, everything going on in Italy is enveloped in regulatory question marks. Everyone is waiting for the government to harmonize its laws with European telecommunications liberalization laws. A breakthrough seemed imminent several times this past year, but nothing happened.
One way for other companies to get into the telecommunications market in the near future is for the antitrust authority to intervene, but this has not been effective thus far. Another way is to "just do it," as have other industrial giants. The government would then be obliged to change the laws to accommodate the move.
In the meantime, many utilities are quietly lining up their fiber potential. However, most of these utilities are state-owned, so how they could legally exploit their infrastructure remains unclear.
"The problem is that all the big utilities are nationally owned," explains Lee. "So legally, it`s not clear that they could offer telecommunications. That makes it difficult to predict what`s going to happen with all this capacity. Telecom Italia also has rights-of-way, but with its deep pockets it can buy at market rates when and where it wants," Lee says.
However, various studies have indicated that the Italians, like the French, are apt to be loyal to their national provider, liberalized or not. There is no surge at a grassroots level in favor of liberalization. Telecom Italia has always been a big employer, and as Lee points out, "it still has an emotional pull for the people."
"Liberalization is inevitable," says Lee. "It`s just a question of when." Italy may be pressured with competition from other countries, which could push forward the liberalization process, or large companies like Infostrada may just push their way into the market. Perhaps users will start demanding lower prices. In the meantime, he concludes, "Telecom Italia has the economic resources to deploy a lot of fiber." q
Adele Hars writes from Paris.