Telecom Italia Appeals to EU over Planned Changes to Unbundling Rules

• Telecom Italia has come out fighting against the new proposals, which it sees as a potential threat to its income at a time when the fixed-line sector in Italy is suffering an alarming retraction.
• Telecom Italia plans to bring fixed broadband to 98% of the Italian population this year, as well as fibre services to 25% of the country, and says that it must be guaranteed a return on this investment.

Telecom Italia has written to the EU concerning proposed changes to fixed-network local-loop unbundling (LLU) regulations, claiming the new rules are incompatible with existing EU laws. The proposals will see maintenance fees for LLU lines separated from the monthly line rental fee charged by Telecom Italia to its rivals for wholesale access to its network. The changes could effectively see the alternate operators gaining access to the network without paying maintenance costs, something that could cost Telecom Italia an estimated EUR168 million (USD223 million) per year, some 2% of its domestic core earnings.

Telecom Italia has won the backing of European telecoms operator lobbyists ETNO, who have written to EU Commission Vice-President Neelie Kroes, saying that the rules do not respect the European regulatory framework, as the planned change "modifies the definition of copper unbundling" according to EU rules, and is calling for urgent action. The new legislation is part of a number of measures introduced by the Italian government to cut red tape, which won a government confidence vote this week, and will now be presented to the Italian Senate, where they must be approved by the end of March.

Our Take

• Italian Fixed-Line Broadband in Retraction: Telecom Italia has come out fighting against the new regulation, which it sees as a potential threat to its income at a time when the fixed-line sector in Italy is suffering an alarming retraction. The ongoing economic slump, coupled with an underdeveloped triple-play sector, has resulted in a recent decline in ADSL fixed broadband connections in the third quarter of 2011, bucking the global trend of growth, and cause for concern for Italy, which remains a fair distance behind its neighbours in terms of broadband penetration (see Italy: 5 January 2012: Italian Fixed-Mobile Broadband Substitution Increases As Mobile Data Use Jumps 54% in Q3 2011). Meanwhile, Italian alternate fixed-line operators complained to the EU last year over proposals not to allow full LLU of Telecom Italia's fibre-optic network (see Italy: 13 June 2011: Italian Alternates Appeal to EU over Fibre LLU Rights—Report). The Italian regulator AGCOM had proposed to only allow end-to-end unbundling (or bitstream access) to the former incumbent’s fibre network, claiming that LLU is impossible due to the architecture of the incumbent's network. However, the alternative operators say that they fear a return to the fixed-line dominance of Telecom Italia if full LLU fibre access is not granted.
• Telecom Italia Looks to Protect Investment: Telecom Italia recently revealed that it had invested some EUR4.2 billion (USD5.5 billion) in Italy in 2011, including the licence acquisitions (see Italy: 13 February 2012: Telecom Italia Invested USD5.5 Bil. in Italy in 2011, Expands Broadband Plans), and now plans to bring fixed broadband service to 98% of the population by 2013, versus the current 92% coverage, while the operator also plans to bring fibre services to 25% of the population within the same timeframe. The incumbent operator says that it must be guaranteed a return on this expenditure and has previously threatened to withdraw investment in the face of unfavourable regulation. Telecom Italia saw core domestic revenues for the full-year 2011 fall 4.6% year-on-year (y/y), as fixed-line sales fell 4.1% y/y, and the mobile sector saw revenue fall 7.5% y/y, due to increases in competition and regulation, and the ongoing recession (see Italy: 24 February 2012: Telecom Italia's 2011 Revenues Up 8.7% on Latin American Growth, Targets Debt Reduction). Meanwhile, market contraction has once again raised the issue of consolidation, with fixed-line rival Wind considering a number of potential mergers, including a possible "mega-merger" with rivals 3 Italia, BT Italia, and Fastweb, or an outsourcing of its network services (see Italy: 27 January 2012: Wind Mulling Italian Merger—Report).