Merging fixed and wireless operations is seen as a necessary development, especially as carriers look to separate transport from service control. One only has to look at the strategies of carriers such as France Telecom, KPN and Vodafone, with its fixed broadband deal with BT.
Indeed, Telecom Italia’s announcement that it will split its businesses into three (fixed access network, fixed retail and content, and mobile) is a reversal of its own recent strategy.
"Completely bizarre," was one wireless analyst's response. He recalls speaking to two executives from Telecom Italia and Telecom Italia Mobile (TIM) last November after they announced details of a new integrated business. “Every other word from both of them was convergence,” he says.
Investment and telecom analysts are split as to what is behind Telecom Italia’s decision. Goldman Sachs and JPMorgan believe it is due to the regulatory environment in Italy.
“The regulatory burden in Italy has become so heavy that Telecom Italia has decided to separate its businesses,” says the JPMorgan report. “Telecom Italia said that such a structure increases its financial flexibility, which we interpret to mean that any of the three assets could be sold.”
Goldman Sachs believes the sale of TIM is risky since Telecom Italia would limit is options and “lose any upside should 3G become more popular in its later generations or should the market consolidate.”
Telecom analysts, meanwhile, have seized on the cost of convergence and the carrier’s debt. “This is not an industry vision just financial engineering,” says Lars Godell, principal analyst, European telecoms at Forrester Research.
Ovum also believes it has little to do with strategic considerations or meeting regulatory requirements. “The main reason seems to be the massive debt that has been accumulated and which is now becoming a real burden,” it says.
“The challenges of integrating the services, networks and organisations of two such large - and largely independent - entities is massive,” adds the wireless analyst. “Perhaps it is simple as TI deciding that the benefits are not worth the cost and pain involved, once it looked at the scale of the challenge.”
Dean Bubley, founder of Disruptive Analysis, believes the issue is financial and not convergence. “Even on the most optimistic forecasts, the majority of mobile customers will be non-FMC for at least the next 5 years, especially if like Italy they are in very pre-pay centric markets.”
Is this a unique carrier issue or the first question mark regarding the wisdom of convergence?
3 comments:
One analyst suggested to Next Generation Networks that this was part of a cunning plan by Telecom Italia to sell TIM to fund a huge WiMAX roll-out to kill the TIM company off. Further investigation has failed to find evidence to back up this claim…
The motivation behind the breakup of Telecom Italia (TI) lies in the loss of financial value that Mr T's holding company has sustained. If they recover the losses from the original share price then it clearly reflects that the sum of the parts are very undervalued and that mobile only has a big premium, which should put pressure on the other big converged telcos. Regardless of what TI may say in public, the product guys are quite clear that the new converged products have no value - or rather lose value. How long can you spin?
What is some surprising is that they do it one year after integrating TIM in their structure, but Telecom Italia is going out the race where DT, FT and Telefonica are competing...
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