Feature Article

June 27, 2012

Will Telecom Italia Structurally Separate Itself?

In recent years, actual divestitures of fixed network assets have been most pronounced in Southeast Asia, where Australia, New Zealand, Singapore and Malaysia have separated their former national telcos into wholesale network services units and separate retail services operations that buy capacity and voice services from the infrastructure company.

There have been rumors for several years that Telecom Italia might consider doing so, as well. The latest rumor has a unit of Cassa Depositi & Prestiti investing three billion euros in a partnership with Telecom Italia that would structurally separate the Telecom Italia network from the retail services unit.

Since 2008, Telecom Italia has operated its network as a functionally separate entity with extensive wholesale operations.

The new rumor suggests that Telecom Italia is prepared to go the next step and fully separate the network operations part of its business, Bloomberg reports. But both Telecom Italia and CDP have denied the rumor. 

It is not so clear whether Telecom Italia’s rumored divestiture of its network is a strategic or a tactical move. You might argue that Telecom Italia sees bigger financial upside in mobile services (what telco would not share that view?), and wants to redeploy its efforts into mobile services, through its already-separated mobile services business. 

But you might also argue that such a decision could also be motivated by much more mundane concerns, such as the ability to reduce company debt, without jeopardizing the fixed network business. Telecom Italia already has been running its network services business in a functionally-separated way, with widespread wholesale operations.

So, simple debt reduction could be driving the thinking. Other European telcos are divesting assets as well, in order to trim debt and prepare for investments in mobile services, and Telecom Italia might think it has little to lose by separating network services from retail sales operations.

Some observers believe Verizon itself strategically believes its landline assets are, to some degree, also expendable, at some point. Wireless already drives Verizon’s revenue growth, and the cost of supporting landline operations becomes more difficult as voice customers continue to dwindle.

Just how far Verizon might someday be willing to go, in terms of a “mobile first” strategy, is not immediately clear. But Telecom Italia’s move suggests that structural separation is becoming thinkable again, after more than a decade of generally dropping from executive thinking. 

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Edited by Brooke Neuman

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