Iliad Italy hits 2.2 million subscribers in Q3 2018

French telecoms group Iliad has released its Q3 2018 numbers and they reveal continued strong subscriber growth from its new Italian business.

By the end of September Iliad Italy had 2.23 million subscribers, up from a million in mid July. This means the subscriber growth rate slowed a bit, but not much, and there was still plenty of momentum. On top of that Iliad Italy contributed €46 million to group revenues in Q3, having chipped in less than ten prior to that, so Iliad seems to be doing a decent job of monetising those subscribers already.

Iliad Q3 2018

Here’s what Iliad had to say in its quarterly report about its Italian performance:

  • Outstanding commercial success: The Group had over 2.23 million subscribers7 in Italy at end-September 2018, just four months after launching its Italian mobile business. By way of comparison, the Group signed up 2.6 million subscribers in three months when it launched Free Mobile in France.
  • A successful upscaling strategy: The Group successfully introduced two consecutive price increases and enriched its offerings, while pursuing its strong pace of net adds. At September 30, 2018, Iliad’s original offer in Italy was invoiced at €7.99/month, including unlimited calls and texts, as well as 50 GB of 4G/4G+ and 4GB roaming allowance.
  • A recognized brand, with the Iliad brand now widely recognized in Italy: At end-September, four out of five Italians knew the Iliad brand, compared with one out of ten before the launch.
  • Third-quarter 2018 revenues generated by Iliad’s Italian operations totaling €46 million, already representing almost 4% of the Group’s total revenues: This amount comprises (i) the subscription cost (€5.99/month, €6.99/month or €7.99/month depending on the offer) and (ii) SIM card activations carried out during the period, at a price of €9.99 per SIM card.

Over in France revenues declined by 2%, with landline operations and sales of mobile handsets cancelling out growth in mobile subscriber revenues. Iliad just blamed competition for the landline situation and lauded an improvement in subscriber mix (i.e. more postpaid) for the mobile improvement. The main reason for the handset revenue decline was a ‘stricter commercial strategy for rental offers’.

Iliad threatens Italy with legal action over 5G spectrum extensions

Iliad is reportedly on the verge of taking Italian watchdog Agcom to court over licence extensions in the valuable 3.5 GHz band which were offered to various WiMAX operators back in 2008.

After having to defend the almost laughable prices operators will be having to fork out for 5G spectrum, Agcom is now under-fire for considering cut-price extensions for four companies in the 3.5 GHz range. With Iliad Italia forking out €1.2 billion 20 MHz of 3.7 GHz and 10 MHz in the 700 MHz band, you can see why the team has issue with the extensions being offered.

The licenses in the 5G-applicable frequencies were initially granted to Linkem, Tiscali, Go Internet and Mandarin back in 2008, with the option of a six-year extension once the initial license expires in 2023. According to Corriere delle Comunicazioni, all of Italy’s operators are irked at the situation, but Iliad is leading the charge with the threat of taking the regulator to regional courts to dispute the decision.

What is worth noting is this is not taking any of the spoils away from the victors of the expensive auction. Not all of the valuable assets in the 3.4-3.6 GHz frequency range were released for auction, with the remaining licenses being used to honour the extensions. Whether these extensions will be allowed to stand is unknown for the moment, as aside from Iliad protests, Italian Senators have requested an investigation by Ministry of Development boss Luigi Di Maio.

One company which will certainly benefit from the saga is Fastweb, a Swisscom subsidiary which primarily offer broadband services in Italy. Fastweb came to a €150 million wholesale agreement with the cash-strapped Tiscali in 2016 for 40 MHz in the 3.5 GHz band, an absolute steal when you compare to the inflated prices for 5G-capable spectrum in the recent auction. Fastweb might be looking pretty now, but the convergence plans will certainly come under-threat with Iliad legal ambitions.

For those who are of a logical disposition, and considering the inflated figures being discussed in the recent Italian auction, one would think the Italian government would decide against renewing the extensions and offer the available spectrum in an auction. Legacy-agreements are certainly something to consider, though the landscape has seemingly evolved enough over the last decade suggest these extensions are no longer viable.

This certainly will not be the only legacy-agreement in place around the world which will come back to bite, though the saga does not add credibility to the Italian government’s ability to operate in a fair and just manner.

Italian watchdog bares its gums in Apple and Samsung planned obsolescence case

Italian regulator AGCM has shown its bite is particularly toothless after fining Apple and Samsung €10 million and €5 million respectively over planned obsolescence.

Following a ten-month investigation for unfair commercial practices, the watchdog found the pair guilty, though after months of barking the bite has proven to be as gummy as a 70 year-old Welwyn Garden City pensioner. For many companies the fines would be considered monstrous, but for these two, it will barely register a blip on the financials.

The statement from the AGCM reads as follows:

“As a result of two complex investigations, the AGCM has ascertained that the companies of the Apple group and of the Samsung group have realized unfair commercial practices in violation of the articles. 20, 21, 22 and 24 of the Consumer Code in relation to the release of some firmware updates of mobile phones that have caused serious malfunctions and significantly reduced performance, thereby accelerating the process of replacing them.”

In Samsung’s case, the watchdog believes the company insisted users who had purchased a Note 4 to install the new Android firmware called Marshmallow, which was designed for the Note 7, but failed to inform of serious malfunctions due to the greater stress on the device.

Apple told the owners of various models of iPhone 6 to install the new iOS 10, which was developed for the iPhone7, without informing the greater energy demands of the new operating system and the possible inconveniences, such as sudden shutdowns. To counter these issues, a new update was released without warning that its installation could reduce the speed of response and functionality of the devices.

In a second investigation of Apple, AGCM found the iLeader did not provide consumers with adequate information about some characteristics of the batteries, such as their average life and deterioration, nor the correct procedures to maintain, verify and replace the batteries to preserve the full functionality of the devices.

Just to put the fines into some perspective, it would take Apple approximately 20 minutes to pay off the €10 million fine, while Samsung would take around 16 minutes to pay off its €5 million penalty.

The issue with these fines is the severity. Apple and Samsung have failed in their responsibilities to their customers, and should be punished. However, these are monstrous companies with unthinkably large bank accounts. Fines should be proportional to the size of the company, otherwise fear will not be instilled.

Fines are supposed to act as a deterrent for any wrong-doing in the future. Considering how minor these penalties are in comparison to the annual turnover of Apple and Samsung, what is to stop them from continuing to edge along the line of right and wrong.

Unfortunately this is the current state of play. Regulators can try to protect the consumer, but until they are given the power to effectively and proportionally punish wrong-doers, nothing will change. This is not the last time Apple and Samsung will be caught doing something wrong, and it’s because they are effectively being allowed to get away with it.

 

Italian 5G spectrum orgy reaches its climax

The frenzy of bidding for mid frequency 5G spectrum in Italy has come to a climax with operators’ cash reserves apparently spent.

The hot action took place around the 3.7 GHz band, where the relatively small amount of spectrum on offer – 200 MHz – and the presence of a new fourth player – Iliad – ensured supply outstripped demand. When we last checked in the bidding had already become frenzied, but they still managed to keep it up for another nine days.

As you can see from the final table published by Italy’s Ministry of Economic Development below, the final amount of cash trousered by the Italian government was €6.5 billion, around three times more than was expected at the start of the process. In hindsight that seems pretty naïve, especially when it came to demand for 3.7 GHz spectrum, but then again Italian operators have paid way more than any other European country for this decidedly limited spectrum.

We could go through all the European 5G auctions ourselves in order to calculate the average price per MHz paid for mid frequency spectrum, but why bother when Iain Morris from Light Reading has already done so and we can just rip off his work?

In Finland’s recent auction 390 MHz of mid frequency spectrum was offered up to three operators. At least in part due to there being so much more spectrum on offer the Finnish operators only shelled out the equivalent of four cents per MHz, according to Morris. The traditionally exuberant UK operators dropped 15 cents per MHz in their equivalent auction but the Italians dwarfed that in dropping 42 cents per MHz.

Telecom Italia seemed happy with the outcome in a press release. “By securing all three band frequencies put on auction, TIM strengthens its network leadership in Italy,” said CEO Amos Genish. “The new frequencies acquired represent a core asset for the Group’s future development and, at the same time, for the ongoing digitization of Italy.” The release also said the 26 GHz block was 200 MHz wide, which was presumably the case for everyone.

Italy 5G auction final

Italian operators throw money at 3.7 GHz spectrum

Italian politicians must be loving the country’s ongoing 5G auction, with operators bidding on the 3.7 GHz band like they think they’re still using lira.

One of the fun things about Europe before the euro was the existence of currencies that, due to historical hyperinflation, operated at crazy exchange rates to the pound. Italy was one of the best examples of this and who doesn’t miss going over there and stuffing their wallet with billion lira notes?

That same longing seems to apply to the Italian operators, who have decided to compete with each other, over relatively useless mid frequency spectrum, with such fervent abandon that it’s hard not to conclude they still believe the bill will be settled in the long-abandoned national currency.

A week ago they agreed to pay the going rate for 700 MHz spectrum that is especially handy due to its long range and superior propagation qualities. They also had a few rounds of bidding on higher frequency spectrum and we noted that Wind might want to make sure it gets a nice lot of 3.7 GHz band, since it didn’t get any 700 MHz, and that new-entrant Iliad might also want to grab more than just 20 MHz of 3.7 gig.

The ensuing days apparently saw frenzied bidding for the 3.7 GHz band to roughly triple the level it was a week previously (see table). This means the Italian state is already set to pocket billions of euros more than was forecast at the start of the auction process and there’s still plenty of time to go.

For context read this Light Reading analysis of the auction orgy thus far, which notes that the Spanish and Irish were far more parsimonious than the Italians are being and even the spectrum-hungry UK operators were positively reticent by comparison. The fun starts again this week and who knows what levels it could reach after a weekend on the Grappa.

Italy 5G auction table 2

Italy trousers €2 billion in pre-5G 700 MHz auction

A spectrum action in Italy covering a bunch of bands has concluded its first phase with prices roughly in line with expectations.

Bidding is underway on spectrum in the 700 MHz, 3.7 GHz and 26 GHz bands, but only the former has concluded. The starting price was €338 million per 2×5 MHz block of 700 MHz spectrum and TIM, Vodafone and Iliad all got 2×10 paired. Iliad apparently didn’t need to bid but the other two don’t seem to have craven the price up much as you can see from the table below.

Wind didn’t get any 700 MHz spectrum, but seems to be pretty keen on some 3.7 GHz action, having bid €338.5 mil for an apparently pre-specified 80 MHz block of it. TIM is leading the chase for the only other 80 MHz chunk, with Iliad apparently content with 20 GHz and Wind the front runner for the other 20 MHz. A contiguous 100 MHz block of 3.7 GHz would come in handy but it seems likely that Wind is bidding against Vodafone for that bit.

TIM issued an announcement gloating about the fact that it now has spectrum in every sub-1 GHz band available. “This important result increases the frequencies available to TIM which are essential for the 5G services,” said the TIM statement. “The new spectrum will be added to the 20+20 MHz that TIM has in the low frequency 800 MHz and 900 MHz bands, which already ensure the supply of UBB services to more than 98% of the population.”

It seems sensible to have a great big auction of a bunch of different spectrum, given the imminence of 5G in the wild. Iliad has been guaranteed a nice lot of 700 MHz, which will help a lot with coverage, but it might want to have another bid for that bigger block of 3.7 GHz if it want to be a significant 5G player. You can read further analysis on this at Light Reading here.

Italy 700 MHz auction table

Elliott slaps Vivendi down over TIM rant

Activist investor Elliott Advisors has hit back following criticism of TIM by French conglomerate Vivendi.

Last week Vivendi, which lost control of the TIM board to Elliott earlier this year, decided to issue a public diss of TIM, with the apparent aim of showing what a rubbish job Elliott is doing. The core of the argument was that the share price is down since it lost and furthermore there has been some gossip in the press.

For such a massive and well-resourced company that was a pretty weak effort and Elliott seems to have had little trouble drafting a dismissive rebuttal. You can see the full statement below, but it essentially comes down to: the share price has always sucked, Vivendi is largely responsible for any of TIM’s flaws and Elliott doesn’t even control the TIM board anyway.

Elliott notes Vivendi’s statement of September 5th. Elliott shares Vivendi’s concern about the share-price performance of Telecom Italia (“TIM”), a problem that has persisted for years. Yet Elliott is disappointed that Vivendi has chosen to attack TIM’s management, its Board and one of its fellow shareholders rather than work toward constructive solutions.

Vivendi seems to have fallen prey to the “short-termism” it has previously decried. After its own multi-year tenure as acknowledged controlling shareholder, Vivendi appears ready to cast final judgement on TIM’s new Board just four months after it was appointed. How can Vivendi avoid responsibility for the state of affairs at TIM when it was in charge for so long and the new Board has been seated for so little time?

Vivendi also criticizes the “disastrous” management of TIM. While we disagree that management of TIM has been “disastrous,” it is worth noting that TIM’s independent Board has not made any significant management changes at TIM: Vivendi’s Board appointed the current CEO, and both the CEO and CFO remain in their positions.

Among a number of misleading comments in its September 5th statement, Vivendi falsely asserts that Elliott “promised” a doubling of TIM’s share price. Elliott did not and does not make “promises” to the market. It is true that Elliott offered an assessment of the upside potential to the TIM share price over the medium term if a revised, independent board adopted Elliott’s value-creation recommendations. To date, the Board has not adopted any of those recommendations. Instead, the Board has thus far adhered to Vivendi’s own approach. As TIM’s Chairman Fulvio Conti noted on Friday, “We are executing a plan that has been devised and approved by [Vivendi] and actually promoted by [Vivendi].”

In its September 5th statement, Vivendi again confuses the proper role of a shareholder, asserting that Elliott has taken “control” of the board. Elliott does not control TIM’s board. Vivendi’s approach to corporate governance — one of apparent complete disregard for board independence — is among the many reasons TIM’s shareholders overwhelmingly voted for change earlier this year.

Elliott encourages TIM shareholders to give the new Board time to show that they can create value for TIM shareholders in what is obviously a difficult environment for Italian stocks and Telcos in general. Vivendi still has significant representation on TIM’s Board. If Vivendi now takes the view that fresh ideas are needed, Elliott would welcome its help in promoting value-creative solutions at the Board level.

It’s hard to imagine what Vivendi thought its half-arsed attempt at propaganda might achieve. Elliott has quite rightly swatted it aside and the lingering impression is of a spoilt child having a tantrum because it didn’t get its own way. It’s possible this was the first salvo in a propaganda campaign designed to culminate in another boardroom battle at the next AGM, but Vivendi will need to significantly raise its game if wants a different outcome.

Vivendi inevitably moans about TIM now that it’s not running it

French telecoms and media conglomerate Vivendi has issued a statement saying how rubbish Italian operator group TIM has been since Vivendi lost control of the boardroom.

Back in May Vivendi lost out to activist investor firm Elliott in a battle to install their respective proxies on the TIM board of directors. Despite the fact that Vivendi’s chosen CEO, Amos Genish, remains at the helm, TIM’s share price has gone down the toilet since then. As Vivendi still owns nearly a quarter of those shares, this decline adds insult to injury.

Here’s the Vivendi statement in full.

Vivendi is deeply concerned by the disastrous management of Telecom Italia (TIM) since Elliott took control of its Board of Directors following the May 4, 2018 Shareholders Meeting:

  • The stock market performance is dramatic: TIM’s share price dropped about 35% since May 4, 2018, and is at its lowest level in five years while in its April 9, 2018 position paper, Elliott promised a doubling of the share price over the next two years.
  • The new governance team is failing: the spreading of rumors (including the departure of the CEO) is causing dysfunction that is harmful to the smooth operation and results of TIM.

Vivendi, its largest shareholder with 24% of the shares, remains convinced of TIM’s significant development potential.

The second bullet point seems pretty thin. Companies like Vivendi routinely insist they don’t comment on rumours and speculation and yet, when it suits them, the existence of rumours that, for all we know, could have originated from sources sympathetic to Vivendi itself, are used as primary evidence of corporate disfunction. Where, for example, might rumours about the CEO leaving have come from?

TIM, of course, is having none of it. Here’s Tim’s counter-statement in full.

TIM’s Chairman, Fulvio Conti, is deeply disappointed by the groundless and absurd accusations – which he rejects – made by Vivendi about the company’s operations.

Since its appointment the Board has been and still is focused on the execution of the Strategic Plan, outlined by Vivendi itself during its management.

TIM is a relevant player in Italy’s economy, with over 50k employees, more than 40 million lines between mobile and landline, able to confront the evolution of the market and competition, as shown by the H1 2018 results.

Finally, the concentration of negative elements coming from the other side of the Alps and influencing the share price is paradoxical for Vivendi.

TIM’s role in Italy’s economy seems entirely irrelevant to this spat and its invocation just serves to illustrate how petty and superficial this tug of love between Elliott and Vivendi has always been. The reference to the Alps was fun, though, and it would appear to be highly symbolic that Conti rather than Genish issed the counter-statement.

It’s not immediately obvious what Vivendi hopes to achieve from issuing such an announcement, apart maybe from some brief catharsis. In the longer term it probably has its eyes set on the next TIM AGM, at which it will presumably bid to reclaim control of the board room. And if TIM’s share price hasn’t recovered significantly by then it may well win too.

Open Fiber banks €3.5bn for Italy FTTH push

Open Fiber has raised €3.5 billion from a pool of commercial banks, Cassa Depositi e Prestiti and the European Investment Bank (EIB) to fuel the firms FTTH push across Italy.

The investment will be pooled together with resources made available by shareholders and recent profits to bolster spreadsheets to $6.5 billion. The plan is to expand the firms fibre footprint to 19.5 million homes, both in urban and rural regions.

“The financial market has shown great interest in the Open Fiber Industrial Plan,” said Elisabetta Ripa, CEO of Open Fiber. “The transaction involves the most important Italian and international credit institutions. This is an important sign of confidence in the project, in the wholesale only model and especially in the Open Fiber people who have done a fantastic job in recent months.”

“The presence in the pool of lenders of several foreign financial intermediaries of primary importance is, implicitly, a sign of confidence in our country, significant in a phase of nervousness of the markets; the operation is also a new demonstration of the growing attention of the markets for the validity of the business model adopted by Open Fiber and other innovative European companies, the most suitable to meet the need to realize, with long-term investments, the infrastructures new generation network for the Gigabit Society,” said Franco Bassanini, President of Open Fiber.

Open Fiber has been making the right noises in recent months, though the Italian market on the whole might look like a very different place before too long. And not a moment too soon for customers who have been experiencing average broadband download speeds of 15.1 Mbps.

Aside from the fibre assault here, board reshuffling and arguments with the Italian government have meant the fixed business unit will be spun off into its own separate, though still 100% owned, business. The move is very similar to the BT/Openreach separation in the UK, though some might hope the same shambles isn’t experienced in Italy.