Telecom Italia Local-Access Separation Raises Eyebrows

Telecom Policy Report, Oct 30, 2006

Telecom Italia's (TI) apparent acquiescence to a government push that it open its network wider to rivals via a separation of its local-loop access facilities is expected to spur speculation within the international policy- making community on whether the plan will foster new competition and be workable in that country (TelecomWeb news break, Oct. 26). In tying such a "last mile" reorganization move with its pursuit of an often- discussed grand communications convergence strategy, the dominant Italian carrier late last week let it be known it is reaching an accommodation with the central government and the national telecom regulator on more open network framework to deal with competitors. Sans details, TI said only that the access network separation would be in accordance with "a model to be jointly developed" with the Italian Communications Regulatory Authority (AGCOM), which sources say had been adamant on improving adherence to interconnection obligations.

Following a board meeting headed by the new TI Chairman Guido Rossi, a communique from the company said its transformation of the access network into a next-generation system - handling transmission of high-definition television, movies, music, video and other business and public services - "will also involve the separation from TI of the access network." By several accounts, the remarks mean AGCOM will be more receptive to approving terms, rates and certifications for TI's new converged services in exchange for greater local-access cooperation.

Looking For Particulars

As particulars surface in the coming weeks or months, policy makers, carriers, manufacturers and industry onlookers will be curious on how close the TI/AGCOM arrangement will follow the model of the BT Group's establishment of a separate subsidiary called "Open Reach" arrangement the British dominant carrier worked out last year with U.K. regulator Ofcom (TelecomWeb news break, Sept. 22, 2005). It also may raise comparisons on how well the Open Reach activity has faired so far in its daily dealings with rival carriers and the overall satisfaction of regulators to date.

According to Tony Marson, senior enterprise research analyst at Yankee Group in the U.K., dominant telecom carriers have gotten approvals on many of its converged services first unveiled last year and only now being touted and ready for launch. "Now TI seems to understand that if something is going to happen with converged services and getting the regulator on its side, it is going to have to do something like this (the special access unit.)," he says. "It is almost exactly a mirror image of BT and Ofcom on Open Reach."

Marson indicates he suspects Italian policy makers and regulators wanted a higher "quality of access" to the TI network because they've already determined the company's posture in converged services would reflect its "significant market power" (SMP) complications against current and/or potential rivals. He suggests the local-access separation is likely what AGCOM originally wanted from TI.

However, what the Italian government got instead earlier this year was a type of backlash from TI. In what it thought would ease the policy pressure, the company revealed plans to split itself in two - creating separate landline and cellular companies - and to sell its Telecom Italia Mobile (TIM) wireless operation to foreign investors. The counter backlash produced widespread industry, political and labor controversy in Italy, including a strike threat. The high-level Italian government battle led to the resignation of then-TI Chairman Marco Tronchetti Provera (TelecomWeb news break, Sept. 13).

Wholesale A Third Unit

Now that the board indicates the company has backed off from selling TIM and will continue as a single company selling both fixed and mobile services, the attention turns toward the separate local-access affair. Pyramid Research analyst Juliano Torii says the new TI restructuring will create three separate units: an independently incorporated wholesale fixed-line network, a retail fixed-line operator (which will remain the main company), and a mobile unit (TIM).

"In our opinion, the separation of the wholesale fixed-line network from TI's retail operations will boost competition, leading to lower tariffs and higher adoption in the broadband segment," he says. "However, the degree of success will depend on a number of key issues that remain to be determined, including how independent the new entity will be, how it will set prices and investments and how it will be regulated."

In addition, Torii maintains that "lacking vigilance from the regulator," TI could get away with mostly cosmetic measures or with somewhat bogus pricing. "In addition, a lengthy process that drags for months or years would enable TI to consolidate its retail broadband market share ahead of further liberalization, delaying its impact," he adds.

In the marketplace, Torii maintains TIM's competitive strength will remain, and none of its strategies will be compromised, even taking into account the separation scenario. "The sector may be in for further rethinking of established dogmas," he remarks, saying among other things that the TI plan "further undermines the increasingly fragile consensus view" that fixed mobile convergence is the exclusive domain of integrated fixed-mobile operators. "Is TI setting the trend once more?" he remarks. "This will remain to be seen."