At Busacca & Associati Mobicom’96 conference last month in Milan, it was clear that Italy’s love affair with il telefonino is far from over. The theme of the conference was The Hour of Hyper- competition, which Pietro Cum, a Busacca consultant, defined as a situation in which the rules do not remain the same, as is assured in a traditional competitive situation. For example, he said, in the cellular phone business, we used to assume that customers had to pay a monthly bill which, of course, is no longer the case in Italy, with the arrival of Telecom Italia Mobile’s pre-paid TIMCard. In fact, the biggest buzz at the conference surrounded TIMCard, which became the Christmas gift that is impossible to find. Vincenzo Novari, sales director for Omnitel-Pronto Italia SpA, said TIMCard was responsible for Omnitel-Pronto’s 70% consumer market share, which it acquired with its wildly successful no-monthly-fee Libero contract, dropping to 18%. Not to be outdone, Omnitel-Pronto is working on its own version of a pre-paid service, says Novari: There are two or three vulnerable areas in the TIMCard offer that we can improve on.
By Marsha Johnston
Despite the constant leap-frogging in product innovation between Telecom Italia Mobile and Omnitel-Pronto, however, not everyone agreed that Italy has reached an era of hyper-competition. Stefano Borghi, chief executive for Nokia Telecommunications Italia, said Italy has only a ‘managed competition.’ It is too ambitious to say we have arrived in the era of ‘hypercompetition.’ I would be satisfied just to see a healthy competition, he said. Paola Vaglica, another Busacca consultant, said the Italian market, at nearly 6 million users, would account for 18% of Europe’s total population of cellular users at the end of 1996. By the end of last year, the total European market, including Scandinavia, would be about 32.5 million users, a rise over 1995 of 49%. Vito Gamberale, chief executive for Telecom Italia Mobile, noted further that, In six years, Italy has gone from last place in Europe to second, behind the UK, which has only about 10% more users. In the first 10 months of last year, Italy added 1.8 million users, compared with 1.6 million in Germany, 1.4 million in Spain and 1 million in the UK. Ms Vaglica said that the Italian market, however, is at a turning point because – the majority of the most profitable clients are already cellular users; – the two existing operators are already competing heavily for this market segment; – the eventual third operator will aggravate competitive conditions; – DECT Digital European Cordless Telephony service (from Telecom Italia) is shaping up as a potential competitor to cellular systems in the urban setting; and – Promotions, discounts, massive publicity investments and handset subsidies depress profits. It is undeniable that the development of the mass market, which implies an increase in subscribers but a drop in traffic volume, will have an impact on operator profitability, she said. Ms Vaglica noted that Italy’s potential telefonino market is at least 12m, which is just over twice the current user base. To overcome the problem, she said, operators must have a flexible information system and technology infrastructure, an automated customer care system, good territorial coverage and a system of fraud prevention. For the as-yet hypothetical third cellular operator, the situation is complicated by the fact the Italy still has no independent telecommunications regulatory agency. Furthermore, Italy has ratified only the European Union directive on deregulation of value-added services. Legislation pending in Parliament would ratify all outstanding directives, including the one deregulating all phone services, says Raffaele Giarda, a lawyer for Baker & McKenzie in Rome. The government is making a considerable effort to eliminate Italy’s lag in implementing EU directives, he said. The current prediction is that Parliament will accomplish its ratification by January 21, so that the Ministry of Post & Telecommunciations can start implementation. But the same ratification was originally expected at the end of 1996. As with many things in Italy, everything is political, and predictions mean little. For example, Parliament was initially in full agreement on provisions that would have shut down the analog TACS network by 2003 to free up frequency, as Brussels has said should be done. After lobbying by Telecom Italia Mobile, the legislation makes only brief reference to the idea, and it is left to the government to implement at its discretion. In the meantime, the government has allocated new TACS frequencies to Telecom Mobile in nine cities, for what it says is only 18 months. Talking to Roberto Pellegrini, Telecom Mobile’s sales director, however, it is anything but clear that the 18-month time limit is certain. The competitive picture is further complicated for a new entrant by the government’s apparent willingness to let Telecom Italia extend its experimentation with Digital European Cordless service from two to five cities. The European Union has defined Cordless technology as a mobile service, a sector open to competition. The Italian government, however, has not yet said that it concurs with that definition and, in the meantime, is allowing Telecom Italia to push ahead. The problem, says Elserino Piol, manager of the mobile service project at Mediaset SpA, is that even though Digital European Cordless’s mobility is more limited than cellular technology, it is one of the few local loop systems open to new entrants. With STET and Telecom Italia owning all of the cable in the country, DECT is the only solution for the last mile. Also, if Telecom Italia’s sales force is allowed to implant itself with a DECT service, it will ultimately prevent customers from having the choice of DCS 1800 or DECT, which is not a great technology. Gerolamo Di Genova, a vice-president at Telecom Italia who got himself put on the round table discussion at the last minute, gave the operator’s standard line that DECT is only an extension of the fixed network for home cordless service, with limited handover capability and reach. Omnitel-Pronto managing director Vittorio Colao retorted that DECT, whether it is a bicycle today and a Ferrari tomorrow, is a mobile communications instrument that should be subject to clear ground rules and economic conditions and the same start date for everyone. Further confusing matters, Telecom Italia Mobile chief executive Vito Gamberale casually announced at the conference that Telecom Italia Mobile, too, would set up a DECT service. Asked whether that meant it would follow Telecom Italia’s suit and invest millions of lira in yet another DECT network, Gamberale said, I didn’t say that. We will maximize the [STET] group’s investment.
Cross-subsidizing
Colao reacted strongly, cautioning against Telecom Italia illegally cross-subsidizing Telecom Italia Mobile’s investment. Is there true separation between Telecom Italia and TIM? One could beg the question. In a casual conversation, one regional Telecom Mobile manager said, We will be starting DECT service in Florence in December. Florence was one of the cities targeted by Telecom Italia. Asked to clarify the ‘we’, he said, No, no, not Telecom Italia Mobile. Telecom Italia. In the meantime, Telecom Mobile’s latest cellular product has turned the market upside down, both for competitor Omnitel-Pronto and for itself. Referring to TIMCard, Antonino Busacca said at the conference outset, This year, we have seen a phenomenon in Italy probably not seen since after the war – queues for a product you can’t find. Dealers all over the country are turning customers away for lack of product. We’re supposed to get 300 of them next week. Let’s see, said one in central Milan. Not all of the result has been positive for Telecom Italia Mobile: the card has spurred switching by its own subscribers that is well over 10%, said a regional manager, who insisted that it will settle at around 15%. We’re just suffering through the novelty effect, he said. Finally, industry observers note that, for once, the two fierce competitors will be on the same this month when they try to renegotiate their 13 cents per minute interconnect charges with Telecom Italia. This being Italy, the charges could even go up, since the interconnect agreement specifies that they can’t go over 21 cents. But they will probably go down, since both Telecom Italia Mobile and Omnitel-Pronto Italia will not be fighting each other, said market analyst Lucrezia Dezio.
