Two years ago, when UK car-maker Rover Group Plc’s Italian subsidiary decided to upgrade its data network, operating systems manager Marisa Coradetti’s first reflex was to call Telecom Italia SpA. After all, Rover had been using the operator’s videotel network for a long time with no real problem except that it was so slow that the cost was becoming prohibitive. We couldn’t even get an offer out of them! she says, in explaining how she arrived at Albacom, the telecommunications services joint venture between British Telecommunications Plc, Banca Nazionale del Lavoro and Italian communications giant Mediaset SpA. Following a two-month trial with 20 Rover dealers who were incredibly satisfied, Albacom’s national X.25 network now provides all Rover dealers the speed necessary – 30 times faster – to cut its total data transmission costs. Over the coming months, Italy’s incumbent monopoly operator may see this scenario become ever more frequent, particularly if the challenger is either Albacom or Ing C Olivetti & Co SpA’s Infostrada – the two have already emerged as Italy’s most likely alternative full-service operators.

Truly niche

Says Tommaso Pompei, Olivetti’s telecommunications policy and strategies director, I think there will be a couple of [alternative] operators – Olivetti and Albacom – who do everything, and some smaller operators occupying truly niche markets. And ahead of full deregulation, both are busy trying to fill gaps in their existing telecommunications services. Corporate data services and international telephony specialist Albacom is upgrading the national voice telephony network it acquired from Mediaset and plans to bid for Italy’s third cellular license – it would give us the best access to the mass market, says Albacom chief executive Paolo Donzella. Meanwhile, Infostrada continues to add nodes and bandwidth to the national network for integrated voice-data service that it launched in March. More importantly, Infostrada expects to add the critical international dimension to its service by signing with France Telecom-Deutsche Telekom AG’s Global One. The two have already submitted a joint bid for 70% of the national railway’s Telesistemi Ferroviari information systems and networking group and its 10,000 mile fiber optic network. Olivetti already owns 41% of Omnitel Pronto Italia, Italy’s second mobile phone franchise. Helen Pickance, public network services analyst for Gartner-Dataquest in the UK, says it’s difficult to evaluate who’s ahead because it’s still the early stages. Olivetti has limited experience in telecommunications, but could surely get it from Bell Atlan tic [33% shareholder in Infostrada]. Maybe British Telecom has a slight edge, although more as an incumbent than a new player. From a branding point of view, Olivetti is a kind of national hero, which should help in establishing themselves. She adds that whoever gets the railway as a partner will have an advantage. Albacom has not bid for the railway’s network. Comparative revenue figures are available for the two companies, as Infostrada has just got started and Albacom doesn’t disclose th em. Donzella, however, says he will report a doubling of revenues in March. In any case, says Ms Pickance, for the first five years, Albacom, Infostrada and others are unlikely to take more than 10% of Telecom Italia’s market share. The total market in 1995 was estimated at some $19,000m, 10% of the total European market, by IDC Italia. As part of its agreement with Mediaset in May, Albacom acquired a 28-node L M Ericsson Telefon AB-based voice network from Mediaset Com, Mediaset’s network sys tems operating company. By the end of the year says Donzella, the network should instead comprise a Stratacom Inc IPX node in each of Italy’s 107 provinces. As a result, says Corrado Riccio, Mediaset’s business development director and Albacom point man, Albacom should be able to launch an even better national integrated voice-data service to compete with Infostrada.

To facilitate its entry into the mobile phone market, Albacom is negotiating with national energy holding company ENI for its fiber optic network and for the radio network of its subsidiary gas company SNAM. Once the deal is done, says Riccio, the network will probably need investment and up to 18 months’ work to get it ready for commercial service, says Riccio. Says Donzella, I believe there is room for a third mobile operator, since the demand for telecommunications services in both the con sumer and corporate sectors in Italy is behind other countries. Infostrada chief executive Riccardo Ruggiero says he has already seen evidence of pent-up demand among Italy’s thousands of small and medium-sized businesses, and Infostrada is quietly building up a sizable business with Infoteleconomy, its dial-out service that connects companies to the public switched network via a dedicated digital circuit to give discounted national long-distance voice and data service. He says some early sales results he expects to announce in the autumn will be very interesting. Ruggiero, appointed chief in January, says that even 10% to 15% savings is enough to tempt such companies to leave Telecom Italia. Furthermore, he says, Infostrada is alone in the market, which he is attacking with the help of 26 I-net partners, mostly PABX specialists. There are no PABX installers saying to me, `If you don’t give me a good deal, I’ll go to Albacom.’ I’m the only one out here, he said. Albacom, Infostrada expects to buy network capacity from one of the handful of Italian organizations that were allowed to build their own national networks over the years – 60% of the cost of this business is leased lines, of which 20% is for backbone and 40 % for local loop access. As tariffs get rebalanced, and long distance comes down and local goes up, resellers will have to switch to facilities-based operation to maintain that cost ratio and keep control of network operation, he said. Infostrada i s discussing the framework of an agreement with Italy’s highway authority, Societa delle Autostrade, to lease transmission capacity from them instead of Telecom Italia, at a better price. Both Albacom and Infostrada acknowledge that a solid interconnect agreement with Telecom Italia is crucial to capturing any substantial market share. Trying to get a jump on the situation, Albacom has already contacted Telecom Italia. We know the problems of interconnection because we have experience with it, so we have asked them to sit down and talk, to help them understand the benefits of a good costs-plus-based interconnect agreement, says Donzella. If he is unable to get a service-level wholesale interconnect agreement (a 50% to 60% discount on current tariffs) by next July 1, Donzella acknowledges he will have to appeal to the regulator, but doesn’t expect to have to. Both Molina and Ms Pickance agree wholeheartedly that neither company will dominate by serving only large corporations, and that marketing costs will be staggering.

Calling cards

There are relatively few multinational companies in Italy, which means it will take a much bigger marketing and sales effort to reach the smaller companies and an operator will need more of them as clients in order to obtain a critical revenue mass , says Ms Pickance. Molina says an enormous investment will be needed to reach Italy’s 2.5m companies of under 10 people. Says Mediaset’s Riccio, One of the problems for all operators in Italy is having a big enough sales structure. Telecom Italia has a store in every city. Olivetti has a large sales force for its information systems and services, and a network of retail stores Infostrada could, in theory, use. But Ruggiero says PABX installers are a much better channel to reach medium to small, independent companies. Olivetti’s direct sales arm may be useful for selling Infostrada to medium to large companies in banking and insurance, and its dealer channel good for selling consumer-oriented products like calling cards, he says. Albacom has a total sales force of some 80 people, 30 of them internal, direct sales. The alliance with Mediaset may open the way to some kind of distribution arrangement with its national network of resellers, says Donzella. Despite stiff resistance from the monopoly and a population unaccustomed to rabid competition in telecommunications, both companies are determined to carve out a market share. Says Mediaset’s Riccio, Yes, STET has a quite aggressive attitude that says it’s best to stamp out the alternative operators while they’re still small. It worries us, but we’re not afraid; it’s part of the game.

By Marsha Johnston