Tuesday, September 12, 2006

CONVERGENCE AND SEPARATION://U-turns at Telecom Italia

Telecom Italia is forcing analysts and investors to rethink the convergence story. Still, the basic announcements are quite limited: separate fixed and mobile; separate wholesale and retail within fixed.
The trouble is that Telecom Italia say that the move is triggered by regulatory issues only and for some reason they stress that the focus will be on broadband and media. Also, time-to-market should improve and the group plans to expand internationally. No wonder that press reports assume that selling TIM and TIM Brasil is really what it is all about. That would help the net debt position and Pirelli.

  • Separating fixed and mobile: a clear u-turn. I find it hard to believe that convergence products would be a hard sell, but I do realize that it is a marketing tool only. Going forward, the issue could be resolved by becoming each other's reseller. TIM could even become a full-service provider once WiMAX (or another 4G technology) arrives.
  • Separating wholesale and retail (structural separation to a degree): openly following BT. A smart move, which could have more following. It stops telcos from defying the stupid network inevitability. Focus on broadband (ie being a pipe) is putting it a different way. Telecom Italia however is set to lose market share (at this point BT is a very different story).
  • Focus on media: too much credit to a tiny unit (La7, MTV, DTT). This too would be a u-turn, as most telcos have given up on telecom/media convergence (Telefonica selling Endemol, etc). Also, there is limited value in reselling content with small margins. Or would Telecom Italia now be a candidate for buying Endemol and the like?
  • Expand internationally: not without risks. In a way, this is the mirror image of being an incumbent. If the latter is a difficult thing, this could be a good thing. However, with PTTs moving toward FTTN, LLU investments are at risk. Also, BB markets are smaller and less profitable than mobile markets. Consolidation could help. I assume that bbned (Netherlands) is no longer for sale and now needs a retail operation. Telecom Italia could be a consolidator (AOL units, Tiscali, etc).
  • Selling TIM and/or TIM Brasil makes little sense to me. Mobile markets suffer from price cuts, but at least there is room for volume growth.

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