TIM follows Orange into the finance fracas

Telecom Italia and Spanish bank Santander have entered into a joint venture to offer consumer banking products to Italian customers.

The joint-venture, 51% owned by Santander and 49% Telecom Italia, will start rolling out financial services through TIM’s retail footprint in the coming months, beginning with financing plans for devices and progressing into consumer loans, credit and insurance in the future.

Like Orange in France, it appears TIM has spotted an opportunity to disrupt the traditional banking industry with a digital-native finance service for Italian customers.

Launched in 2017, following the acquisition of Groupama Banque, Orange Bank now has more than 500,000 customers, offering a full range of consumer banking products from current accounts to personal credit and insurance. Part of the success of this venture has been attributed to cross-selling opportunities created through the telcos retail footprint. The team aim to have 5 million customers by 2023.

Although diversification is a key trend in the telecommunications industry, the more drastic ventures have more often than not dwindled into obscurity. However, Orange Bank is the poster child of successful diversification, and it appears TIM wants to get in on the act.

Like Orange, TIM will start with simple financing products. Once the relevant authorisations and licenses have been secured, the team will aim to move into additional products such as credit cards and consumer loans.

Perhaps the most interesting element of this story is the potential for success. Digital banking services are becoming increasingly popular with consumers, especially with digital natives taking over society, though the traditional banking companies have been unable to most appropriately capitalise on the trend. Digital products and applications have been largely cumbersome, opening the door for digitally native alternative to gain traction.

Monzo, Revolut, Starling Bank and Doconomy are examples of companies who have adapted the financial services industry for the digital consumer, though there is still plenty of room for disruption. One thing which Orange has shown is that a trusted brand can be translated into a completely unrelated industry.

TIM is of course in a strong position in the Italian market with 31 million mobile subscribers and 7.5 million broadband customers, offering plenty of opportunity to cross-sell services. For Santander, it certainly offers an interesting opportunity to branch out into a market where it has no consumer presence currently. Should TIM and Santander be able to replicate the success of Orange it would certainly be welcomed by the battered financial spreadsheets at the telco.

Italian telcos fined for pricing collusion

Telecom Italia, Fastweb, Vodafone and Wind Tre have been fined a total of €228 million after an investigation found the four telcos had co-ordinated price hikes for consumers in 2017.

The complaints against the four telcos had been raised by Iliad, a fifth service provider in the market, as well as Onlus CODES Association and Altroconsumo, two consumer rights groups. The investigation has now been formally concluded with Telecom Italia taking a €114 million fine, Vodafone €60 million, Wind Tre €39 million and Fastweb €14 million.

Telcos are of course allowed to raise prices as they see fit, though when it is done in such a collective manner to prevent churn and competition, regulatory authorities will become nervous.

In this case, the Italian Competition Authority (AGCM) found the telcos aligned their commercial activities which violates item 137 of the Italian consumer code, though it is somewhat of a complicated story.

The Italian telco decided to move from a monthly billing cycle to a 28-day one in 2017, though as the prices were not decreased during this transition. Consumer and advocacy protests focused on the 8.6% price hike which would be experience over the course of the year, as the telcos were effectively creating a thirteenth billing month.

In 2018, the telcos decided to pivot back to the monthly billing standard, though there would be a price increase to compensate for the shift. The consumers were back to square one but were paying more for the pleasure.

The AGCM has now concluded the co-ordination between the telcos allowed each to keep the inflated tariffs, made it unnecessarily difficult to compare tariffs and unfairly prevented the consumer from searching for a better deal.

While it is very difficult to 100% guarantee the consumer will be safeguarded from underhanded and nefarious corporate practices, the AGCM is at least dishing out fines which will make a material impact on the spreadsheets. The telcos will of course be able to afford these fines, but the amount will certainly make them think twice about trying this sort of thing again.

Facebook faces €5mn fine in Italy

The Italian competition authority, Autorita’ Garante della Concorrenza e del Mercato (AGCM) is intending to fine Facebook €5 million for ignoring its previous ruling.

Having already been fined €10 million in December 2018 for violating the country’s consumer code, the AGCM has followed up with another seven figure-fine for ‘non-compliance’. Facebook has seeming not made amends for the violations of yesteryear, by adequately informing the user of data collection, and will face another investigation.

The new investigation, which has been confirmed by the Regional Administrative Court of Lazio, will potentially fine Facebook an additional €5 million.

The issue which is at the crux of this saga for Facebook is ultimately one of transparency. While Facebook does not charge users for its services, the Italian competition regulator does not feel the social media giant is doing enough to make its users aware of how personal data is collected, store and analysed for commercial means.

Although Facebook removed the ‘it’s free and always will be’ tag from the website under orders from the regulator, it is now believed the social media giant failed to ‘adequately and immediately’ inform users on the data collection ambitions. Facebook also failed to publish the amending statement on the platform.

In addition to a €5 million fine, Facebook will have to publish an amending statement on the homepage of its website, the app and the personal page of each registered Italian user, should the proceedings find Facebook guilty.

While it will surprise few Facebook is finding itself in another spot of bother when it comes to transparency and honesty with its users, it is quite surprising the social media simply ignored the demands of the regulator. Although it is far from a good corporate citizen, it seems highly unusual the team simply didn’t pay attention to the Italian regulator in the first place.

Could Iliad Italia be a victim of Corporate Darwinism?

Iliad’s Italian business unit has lodged complaints with Italian and European regulators regarding network sharing deals, but could these objections be effectively ignored?

While network sharing is a proposition which offers great benefits to cash-strapped telcos in pursuit of the eye-wateringly expensive 5G connectivity dream, it is not without its opponents and critics. Some regulators have become very defensive about the progressive idea, while there are telcos being left out of discussions who are objecting also.

In Belgium, Telenet has raised concerns over a tie-up between Orange and Proximus, while the European Commission prevented O2 and T-Mobile from expanding an existing agreement to include 5G in the Czech Republic. Both of these network sharing partnerships have been halted in the pursuit of maintaining attractive levels of competition, but Iliad’s objections might fall on deaf ears.

Iliad is objecting to network sharing agreements between Wind Tre and Fastweb, as well as another between Telecom Italia and Vodafone Italia. Iliad is the only major telco in Italy not to be in a network sharing discussion. If these partnerships bear fruit, efficiencies will be realised, meaning competitor funds can be redirected elsewhere.

If this is a prediction of the future, Iliad will be in a weakened position to compete in the Italian market, and financial pressures could become too much to justify the venture. Iliad could become a victim of Corporate Darwinism.

The competition versus consolidation conundrum

Competition has been somewhat of a difficult topic of conversation between the regulators and telcos in recent years, primarily because of the polar-opposite opinions on market consolidation. The telcos would like to consolidate to achieve scaled economics, while the regulators want to preserve the number of telcos in each of the markets to maintain competition and encourage investment.

There are pros and cons on either side of the fence, though the regulators do not seem to be shifting. This argument has knock-on effects for network sharing agreements.

Ovum’s Dario Talmesio points out, network sharing could be viewed as consolidation through the backdoor. Combined assets reduces the number of independent networks in the market, and potentially reduces investments and competition.

In the Czech O2 and T-Mobile case, the European Commission suggested as there were only three major players in the market, further combination of assets between two of the parties would present too much of a risk of the third being squeezed out. The same case has been presented by Telenet to the national regulator in Belgium.

Regulators are sensitive to any propositions which would negatively impact competition in a market, but what about markets where the number of telcos could actually be reduced?

How much is too much competition?

While there is no official stance on the number of telcos in a market, the European Commission does not generally approve activities which would reduce the number of telcos below four. Vetoing the O2/Three merger in the UK, or Telia/Telenor in Denmark are two examples, but this might not be the case in Italy.

If regulators were to allow the network sharing agreements to proceed, Iliad would certainly be in a very precarious position, though there would still be four mobile service providers in the country; Telecom Italia, Vodafone Italia, Wind Tre and a Fastweb proposition enabled by its agreement with Wind Tre. This might be deemed enough competition in Italy to maintain a healthy market for the consumer and a financially sustainable one for the telcos.

The four telcos named above are venturing into untested waters here. This presents a new question for the regulators to answer on competition. Theoretically, suitable levels of competition are being sustained, and this network sharing dynamic has been approved by regulators in the past.

In the UK, Three and EE have formed MBNL, while Vodafone and O2 have CTIL. These are passive infrastructure sharing joint ventures, focusing on the rural environments. It is a similar situation which would be created in Italy, and the UK does have a sustainable telco industry. It is evidence that the dynamic could work, with or without Iliad in the mix.

Could this be a case of Corporate Darwinism?

Corporate Darwinism occurs when a market evolves to such a degree that players are either irrelevant or uncompetitive, and therefore go out of business.

The best example of this is Blockbusters. Once a dominant player in the movie rental business, as the distribution of content moved online the proposition of Blockbusters was no-longer relevant, therefore the company did not survive. This is an example of a market evolving to such a degree that the business was no-longer relevant.

The Iliad example is perhaps one where the market evolves to such a degree that the business is no-longer competitive.

If the four remaining mobile service providers have network sharing initiatives driving network deployment, investments can be more intelligently spend (a) on the network, or (b) in other areas of the business.

The shared networks might have a greater geographical footprint, have future-proofed technology and higher performance specs. Theoretically, Iliad would churn subscribers to higher quality rivals. Also, as less money is being spent on network deployment, tariffs could be lower, but profitability could be maintained. Or, more cash could be invested in value-add propositions for products. Rival offerings could look more attractive than Iliad products.

If regulators approve the network sharing agreements between Telecom Italia and Vodafone Italia, alongside Wind Tre and Fastweb, Iliad would find itself in a very difficult position. It become difficult to see the telco surviving in the long-term.

Unfortunately for Iliad, there is a coherent argument to approve the partnerships to drive towards a more sustainable telecoms industry, allowing the telcos to realise efficiencies ahead of the vast expenditure of 5G. The consumer would benefit, as would enterprise customers and the Italian economy on the whole. It might be a case of letting Iliad die out for the greater good of the Italian telecoms sector.

Iliad calls on courts to block Wind Tre and Fastweb sharing deal

Wind Tre and Fastweb have been attempting to take network sharing in Italy to a new level in recent months, but once again, Iliad has its objections.

While there will always be objections to network sharing agreements from some corners of the telecoms industry, Iliad is making a habit of it. As the only telco without a partnership to share communications infrastructure, the Italian disruptor is seemingly attempting to make sure it isn’t left on its lonesome.

According to Reuters, Iliad has submitted documents to an Italian court seemingly in an attempt to obstruct the partnership between Wind Tre and Fastweb. A first hearing will take place on February 12 to access whether Iliad should have access to the deed, though this follows objections made by to Italian courts for a similar deal between Vodafone and Telcom Italia.

The agreement between Wind Tre and Fastweb was originally signed in June 2019. The pair would deploy a shared 5G radio access and back-hauling network across Italy, and also Wind Tre and Fastweb macro and small cells, connected through dark fibre from Fastweb. The aim is to cover 90% of the Italian population with 5G connectivity by 2026.

Wind Tre will also provide Fastweb roaming services on its existing mobile network, while Fastweb will provide Wind Tre wholesale access to its FTTH and FTTC network. It is a very complementary deal for the pair, with the opportunity to realise genuine cost savings when looking forward at 5G.

However, Iliad seems to want to put a stopper on the partnership before it gets going in earnest. This is not the first time it has rejected the network sharing momentum in the country either.

The European Commission is also investigating whether plans to merge Telecom Italia and Vodafone Italia tower assets into a single operating company violate antitrust laws. Iliad has reportedly complained about this deal to regulators also. A decision on this dispute is set to be given on February 21.

The tie-up between Telecom Italia and Vodafone Italia is built along similar lines to the Wind Tre and Fastweb partnership. Firstly, the tower assets of both companies would be merged within telco neutral infrastructure company INWIT, with each telco taking a 37.5% stake. The next stage would be sharing active infrastructure, testing first on the existing 4G network with the intentions of realising efficiencies on 5G deployment plans.

But perhaps the most interesting aspect of both these partnerships is the validation of network slicing. While other agreements have focused on the passive infrastructure, this extends the sharing model to active equipment. Both of these parties would effectively be running virtualised networks over the shared infrastructure, a major validation of network slicing if it works.

This is the sort of partnership which telcos will be very keen to see work, while network infrastructure vendors will pray to see fail. Validation of network slicing could revolutionise the way in which rural networks are deployed and managed, allowing consolidation of CAPEX between national telcos through a single point for both passive and active infrastructure. It could drastically reduce overbuild and save the industry billions.

“Completion of this transaction is key for the country’s infrastructure and technological development and will enable us to further accelerate the deployment of 5G, with Italy already among the countries taking a lead in trials of this new technology,” TIM CEO Luigi Gubitosi said at the time.

Despite the clear benefits of network sharing agreements, there are still concerns in the industry. Regulators are worried over the impact of competition, most notably as to whether non-participants in the sharing trusts will be squeezed out of the market. One means to counter this would be to have an independent or nationalised wholesale party, with all mobile service providers effectively becoming MVNOs, but it is highly unlikely telcos would want to move in this direction, effectively diluting their influence on the industry.

That said, the industry is gradually heading that direction as telcos search for funds to fuel the 5G expansion.

Infrastructure companies such as Cellnex are hoovering up passive infrastructure assets across the European continent, while infrastructure investment funds are also seeking out deals. In both of these instances, the acquirers recognise the telcos need money desperately; there are good value acquisitions to be made for those who have a long-term view on ROI in the passive infrastructure game.

The next step is network slicing, which will be taken forward during with 3GPP’s Release 16. Should network slicing be validated, it will only be a matter of time before owners of passive infrastructure start to put their own active infrastructure on the assets and sell slices to the mobile service providers. It certainly won’t happen overnight, but it is a very feasible outcome.

The telecoms industry is at somewhat of a crossroads. 5G is on the horizon, and the realities of funding this expansion are hitting home. The telcos have seen revenues eroded over the last decade but are now being asked to underwrite the most expensive infrastructure project to date. The equation is not balanced, so new ideas are needed.

Italy is a country which is perhaps under more pressure than most. Aside from the drastic reduction in pricing thanks to the introduction of the disruptive Iliad, few spectrum auctions have pushed the financial capabilities of telcos as much as the Italian’s. This is a market which is under pressure.

Network sharing agreements, both passive and active infrastructure, are interesting ways to generate more with less, though it does appear Iliad will attempt to derail progress. As the mobile player in the country without a deal, it does appear the firm fears being squeezed out of the market.

Interestingly enough, the question remains whether authorities will care? If Fastweb is to introduce its own mobile products, Italy would have four mobile service providers fuelled by the efficiencies of network sharing agreements. This might be deemed sufficient competition in the market, therefore the needs of Iliad might be sacrificed in pursuit of benefits for the greater good.

It’s déjà vu all over again as Vivendi suffers another Italian defeat

Italian Media company Mediaset wants to merge its Italian and Spanish businesses, something that significant shareholder Vivendi opposes.

The combined company would be called MediaFor Europe and a Mediaset EGM recently voted to go ahead with the merger plan. French conglomerate Vivendi owns around 30% of Mediaset, but two thirds of its stake is held in a trust by a company called Simon Fiduciaria, following a ruling by the Italian telecoms regulator that owning big chunks of both Mediaset and operator group TIM violates media plurality laws.

Subsequently it seems to have been decided that Simon Fiduciaria doesn’t get a vote in Mediaset general meetings, thus greatly diminishing Vivendi’s voice at such events. Vivendi reckons that’s the only reason the Berlusconi family, which owns almost half of Mediaset via its investment vehicle Finnivest, won the recent vote and it’s not happy about it.

Vivendi deplores today’s irregular approval by the Mediaset Extraordinary Shareholders Meeting of the new merger plan regarding MediaForEurope,” said a Vivendi press release. “The new plan has only gained approval because of the unlawful refusal to allow Simon Fiduciaria (which holds 19.9% of Mediaset share capital) to vote, relying on an interpretation of the Italian media law which is contrary to the EU Treaty.

“In addition, the new plan was adopted ignoring Italian law procedures regarding trans-border mergers, including the withdrawal rights for shareholders, and has merely removed some blatantly abusive clauses, without modifying the disproportionate rights granted to Fininvest.

“All recent judicial decisions and opinions, in particular from the Advocate General of the Court of Justice of the European Union in December, have not discouraged Fininvest’s representatives in the Mediaset Board from depriving minority shareholders of their most basic rights. The Mediaset Board has once again placed the company in a situation of serious legal uncertainty.”

All this huffing and puffing from a massive conglomerate that routinely tries to hijack the running of large companies without going to the trouble of buying them is a bit rich. Last year Vivendi’s protracted attempt to do so at TIM failed and history seems to be repeating itself, with Mediaset regarding Vivendi’s interests in the company as hostile. Vivendi’s principle objection to this merger seems to be a dilution of its shareholding in the combined entity, rather than anything to do with the strategy and health of the company as a whole.

TIM claims 5G speed record with help from Ericsson and Qualcomm

A trio of telecoms trailblazers managed to break the 2 Gbps barrier with 5G over 26 GHz, which is apparently a European record.

TIM, Ericsson and Qualcomm have a rich history of collaborating in the name of self-promotion over 5G and there’s nothing like a speed record for a bit of corporate chest-beating. TIM has a whopping 400MHz of spectrum in this millimetre wave band, which is the main reason it’s able to set records such as this. Meanwhile, as ever, Ericsson provided the radio and Qualcomm the modem.

“This milestone paves the way to the development of new 5G solutions to grant fixed ultrabroadband to families, companies and public authorities not yet covered,” said Michele Gamberini, TIM’s CTIO. “This also includes coverage dedicated to the development of robotics and automation digital services in the smart manufacturing area. All of our customers will therefore be able to take advantage of a wide range of integrated solutions that will allow them to fully enter the digital society”.

“We are extremely pleased that TIM has chosen Ericsson’s 5G technology to achieve this important milestone, placing our country at the forefront of the commercial implementation of the fifth generation of mobile networks,” said Emanuele Iannetti, Country Manager at Ericsson Italy. “Ericsson thus confirms its technological leadership and its readiness to anticipate any market demands.”

“Qualcomm Technologies congratulates TIM on this significant milestone which again demonstrates the potential of 5G mmWave technology and shows how operators are able to use a wide range of spectrum bands to deploy 5G,” said Enrico Salvatori, president, Qualcomm EMEA. “2020 will see a significant expansion in 5G coverage and the use of mmWave bands will play a clear role in the build-out.”

The rest of the TIM press release was mostly spent going on about how this proves the company was right to blow loads of cash at the last Italian spectrum auction. It still remains to be seen how useful high frequency spectrum will be in real life, or indeed how much use there will be for such high data rates, but it’s always nice to be able to claim you’re at the cutting edge regardless.

Italy throws Huawei a bone and the US a cheap-shot

The Italian Government looks set to greenlight Huawei’s involvement in the market, while simultaneously criticising the increasing protectionist trends around the world.

Speaking to local press, Minister of Economic Development Stefano Patuanelli suggested the right protections are now in place to mitigate any cybersecurity risks involved. Although the US feel this is not an outcome which is possible, many European nations seem to be heading in this direction.

“We have passed legislation that guarantees national security,” said Patuanelli. “With the right defenses, the possibility of (Huawei’s) access is not up for debate.”

Last week, some politicians suggested the Government should review the current dynamic, hinting that the likes of Huawei and ZTE could not be trusted to contribute to such sensitive infrastructure. However, this does seem to suggest there could be profits to be made in the country for the Chinese vendors.

Interestingly enough, this news could drive a bigger wedge between the Italian and US political administrations.

The US Government is attempting to pressurise European administrations to ban Huawei, though there has been little success as of late. In Italy, tensions have been heightened with the Government attempting to capture additional tax revenues from Netflix. The US Government has already fired several warnings towards the country and have also threatened additional tariffs on Italian wine and cheese.

While this is by no means a guarantee of an outcome in Italy, ignoring US cautionary Huawei tales would add more strain to the relationship.

To stir things up further, Patuanelli has also seemingly directed a barb towards the contradictory policies in place in the US.

“One cannot fly the flag of the market with one hand and that of protectionism with the other,” Patuanelli said.

This comment has of course not been officially directed towards any individual or government, though the US under the leadership of President Trump has become increasingly protectionist and isolationist with new policies.

For the telcos, some much needed certainty might be on the horizon. Telecom Italia is already chomping at the bit to name suppliers and pursue the 5G dream, but realistically all the telcos will be craving an absolute decision. With uncertainty as to which vendors will be available in the future, progress will stutter, though these statements do suggest a decision might be just around the corner.

Italy readies itself for tax assault on Silicon Valley

The Italian Government is preparing to join the UK and France in taking a tougher tax stance against Big Tech with the introduction of a 3% sales tax.

Designed to target the elusive technology giants which have been slipping between the mountains of red-tape to take advantage of cheaper tax destinations, the levy will be based against revenues realised in the market as opposed to tax. While it might be possible to move profits to different markets in the bloc, it is much more difficult to disguise payments taken from individuals who physically reside in Italy.

While it still might be early days in tackling the abuses of the taxation landscape, momentum is starting to gather. According to sources, the new tax regime could be announced during the next budget and set in place January 2020. The new budget from the coalition is due to be submitted to the European Commission today [October 15].

Although details are relatively thin for the moment, take any predictions or leaks with a pinch of salt. It would be fair to assume Italy is heading down the same route as the UK and France in holding Silicon Valley accountable to a fair and reasonable tax position, though due to the complicated political situation in the country, what form this could take is unknown for the moment.

During the 2018 Italian election, no political group or party won an outright majority resulting in a hung parliament. Numerous coalition governments could have been formed, and after a few failed attempts, the centre-left Democratic party and the anti-establishment Five Star Movement were sworn in last month.

These policies have been in the works for some time now, though what eventually comes out of the wash remains to be seen. Interesting enough, the failure of this latest coalition could force the country into another election, potentially a new government and perhaps a new line on tackling Big Tech.

That said, the only thing which is clear coming out of this political kafuffle is that Silicon Valley is a target.

Across Europe there are several member states who are becoming increasingly frustrated with the flamboyance of the internet giants accounting departments. There are of course a few who have scuppered a pan-European approach to new digital tax rules, the likes of Ireland and Luxembourg of course benefit from the unfair status quo, though with several member states going it alone, the writing is on the wall for Big Tech.

This is just one element of the changing landscape for tech. Alongside a rethink on tax rules, regulation and legislation governing data, privacy, surveillance, free speech, political advertising and artificial intelligence are in the works. Governments and regulators are attempting to drag bureaucracy and the rulebook into the digital era, and it might be a bit uncomfortable for some of Silicon Valley’s residents.

Italy challenges Netflix tax strategy

The Italian Government is investigating Netflix after the streaming giant failed to file a tax return in the country.

According to Bloomberg, an investigation has been opened to ascertain whether Netflix is liable to pay tax in the country. Although Netflix does not have offices or staff in the country, it does own fibre-optic cables and servers. The probe will aim to determine whether this is deemed a presence which makes it liable for tax.

Italy is currently in the process of cracking down on multi-nationals which it deems does not contribute a reasonable and fair amount of tax to the national coffers. Gucci owner Kering SA has already agreed to pay $1.37 billion to settle an investigation, while Mastercard is also facing scrutiny. With such a wide-ranging remit, it was only going to be a matter of time before Silicon Valley was brought into the picture.

While it might be causing political friction with the US, the residents of Silicon Valley are facing more scrutiny when it comes to creative taxation strategies. Owing to the nature of the internet and there being no need to maintain a ‘physical’ presence in some countries, many of the Big Tech fraternity have been employing creative tax strategies for years, paying what some would consider miserly in comparison to the profits made.

Europe has had enough of Big Tech seemingly avoiding paying fair and reasonable tax back to the societies they benefit so richly from, and Italy is just one of the cogs in the machine. The UK and France are two other countries taking a more strident approach, though a bloc-wide approach from the European Commission has been scuppered to date by self-serving members such as Ireland and Luxembourg.

What this does have the potential to cause is greater conflict between Italy and the US.

The relationship between the two is increasingly fraught. Yesterday, the US threatened Italy over any potential relationship with Huawei, while it is also on the verge of imposing new tariffs which would threaten the export of Italian wine and cheese. President Trump has already suggested ‘digital taxes’ are a way of Europe bleeding US success, and we suspect few will be happy with Netflix being targeted here.

What is worth noting is that these are very early days in the probe, though there could be some interesting precedent set. If the government argue correctly that hardware counts as a physical, and taxable, presence in a market, it could open the door for more probes into other internet companies who maintain they do not have a physical presence in a market.

What we are unsure about is why Italy is going down this route instead of taking a similar path to the UK and France. Netflix can be forced to declare how many subscribers it has in the Italian market, and therefore how much revenue it is realising. It seems a much simpler means to success to simply apply a sales tax on the revenue which is being taken from Italian subscribers.