<A> Delay On Key Decree Stalls Telecoms Competition In Italy
By Nicole Bullock
MILAN (Dow Jones)--Bureaucratic foot-dragging continues to delay the start of competition in Italy's fixed-line telecommunications market.
The latest - and hopefully final - hurdle to full-fledged price competition is the lack of a decree which will likely require former state-run monopoly Telecom Italia SpA (I.TLE) to lower interconnection fees for competitors who must use its network.
For Italy's new fixed-line operators, the decree is a key component in the start of official operations and competition. Telecom Italia's proposed fees are nearly 40% above the highest price recommended by the European Union Commission in January.
Telecom Italia attributes the difference to higher costs resulting from taxes, which it has asked the government to abolish now that the market is opening. The decree is expected to bring fees in line with E.U. recommendations.
The market's four new entrants plan to build their own infrastructure, but will likely have to rely on Telecom Italia for so-called 'last mile' local access.
'The persistent lack of the interconnection decree does not put (us) in conditions to propose a full competitive offer of services to the market,' said Riccardo Ruggiero, chief executive officer of Infostrada, which obtained one of Italy's first fixed-line telecommunications licenses in February.
Michele Lauria, undersecretary of the Ministry of Communications, told Dow Jones Newswires Tuesday that the decree is expected to be published 'in a few days.'
Communications Minister Antonio Maccanico and Treasury and Budget Minister Carlo Azeglio Ciampi signed off on the decree several weeks ago, and it's now in the Corte dei Conti, or court of accounts.
The Communications Ministry said in early April that the decree's publication was imminent. Lauria attributed the latest delay to formalities.
The process of setting interconnection fees began in July, when Telecom Italia submitted a list of proposed charges, which were criticized as too high.
The Ministry of Communications has since grappled with establishing a national norm - something that didn't exist previously - on which Telecom Italia must base its prices. The interconnection decree has been snarled in red tape ever since.
Telecom Italia now charges ITL400 a minute to connect to its network, roughly double the average European rate. Of interest is whether the interconnection rates are set at the top or bottom of E.U. guidelines.
'This is a sensitive issue,' a Milan-based analyst said. 'The rates will raise or lower the barriers to entry into the telecom sector in Italy.'
The Ministry of Communications ended Telecom Italia's monopoly over fixed-line service in Italy earlier this year, when it awarded licenses to install and supply fixed-line telephone infrastructures to Colt Telecom Group PLC (COLTY) and to three consortia, Infostrada, Wind and Albacom.
Infostrada is a joint venture between Olivetti SpA (I.OLV) and Mannesmann AG (G.MMW). Wind links Deutsche Telekom AG (DT), France Telecom (FTE) and Italian electricity group Enel SpA (I.ENL). Albacom is a joint venture between Italian media group Mediaset SpA (I.MEI), British Telecommunications PLC (BTY), Italian energy group ENI SpA (I.ENI) and Banca Nazionale del Lavoro (I.BNL).
Albacom officials also have complained publicly about delays in publishing the interconnection decree. 'We're waiting for the (decree)... to accept the first call on our network,' Chief Executive Giuliano Venturi told journalists Wednesday.
While the new fixed-line operators plan to build their own networks, they need economical access to Telecom Italia's lines. The new carriers will rely on Telecom Italia in the start-up phase and for 'last mile' access, the final laying of cable to residential customers' doors.
'All the new entrants will build out from various bits of existing transmission lines, thanks to some kind of partnership with a company that has existing infrastructure,' a London-based analyst said. 'The local lines most likely won't be replicated by a new entrants.'
Infostrada last month reached agreement with Ferrovie dello Stato SpA, the state-owned railway company, to develop a fiber-optic network on the FS infrastructure in coming years. Wind pays Enel for use of its electric lines, while Albacom has inherited networks from ENI and BNL.
Another ingredient in the mix is the idea of a wireless 'last mile,' analysts say. Tapping into wireless linkups for fixed-line connections is both easier and more economical than building new infrastructure.
'In Italy, when you dig into the ground, you can easily run into stumbling blocks, like water or Roman ruins,' the Milan-based analyst said.
But the wireless 'last mile' is an ambitious task and entails using largely untested technology, according to market-watchers.
As they await the interconnection decree, the new fixed-line operators are scurrying to solidify plans for their own networks, focusing mainly on large business clients. Once the decree is in place, the new carriers can start whole-hearted jockeying for position.
Onlookers say it's inevitable that Telecom Italia will lose market share to the upstarts. 'The question is whether the whole industry is growing enough for Telecom Italia to grow revenue while losing market share,' the London-based analyst said.
Most of the new operators aim to be major competitors to Telecom Italia and are armed with projections and investment plans that back up those intentions.
Infostrada, for example, estimates that the market for fixed-line telefony will expand by 88% between 1997 and 2007, growing to ITL52.9 trillion from ITL28.1 trillion. It plans to start pushing for residential clients in the first half of 1999.
The consortium intends to invest ITL2 trillion in its network by 2003 and aims to develop 5,000 kilometers of the FS fiber-optic network by 2000. Infostrada also is targeting sales of ITL1 trillion and a customer base of 1 million by 2000, and it expects to become profitable in 2002.
Wind, which is also in the running for Italy's third mobile-telephone license, is targeting a client base of more than 8 million by 2007 -
assuming a share of 15% of the fixed-line market and 20% in cellular - and sales of ITL10 billion. It plans to service 59 cities by 1999 and 94 cities by 2000, by developing a fiber-optic network based on Enel's existing infrastructure.
Albacom is polishing up its network via accords with Telefon AB LM Ericsson (ERICY) and Alcatel Alsthom SA (ALA) and has spent more than ITL100 billion in the current phase of development. The consortium is now running compatibility tests with Telecom Italia's network.
Albacom projects sales of ITL650 billion by the 2000 fiscal year, compared with its target of ITL364 billion for the fiscal year ending in March 1999 and sales of ITL145 billion in fiscal 1998.
Colt, which holds a license to operate in the greater Milan area, aims to get up and running in the fourth quarter of 1998. The U.K.-based company plans to build its own infrastructure, focusing on major corporate and commercial customers. Colt will have to connect with Telecom Italia's infrastructure or those of other operators for calls outside the city.
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