Telecom Italia Announces Open Access Network Separation

| Feb 21, 2008 | Competitive Update
| Consumer Broadband Service - Europe, Business Telecom Services - Europe
| Analyst: Joel Stradling

Current Perspective: Positive
Vendor Importance: High
Market Impact: High

Event Summary

February 13, 2008 -- Telecom Italia created a new division, ‘Open Access,’ complying with recommendations from the local regulator, AGCOM. Open Access is a separated network operation that will transparently serve both internal customers from Telecom Italia’s commercial activities and alternative providers. The new division includes four sub-divisions, namely: Open Access (network development and maintenance), Network (technical innovation), Information Technology and Technical Infrastructures.

Analytical Summary

• Current Perspective: Positive on the creation of an independent Open Access network division at Telecom Italia, because the carrier can launch products with less hindrance from the local telecom regulator, AGCOM. Furthermore, the Telecom Italia Group will continue to generate ongoing wholesale access revenues both from its internal customers and from other operators and ISPs leveraging national fixed-line network infrastructure assets.

• Vendor Importance: High to Telecom Italia, because the company needed to give greater transparency in its wholesale access and retail business models to avoid complicated legal battles and accusations of unfair practice. The company needed to initialize a network separation path under its own steam to prevent a forced separation. This event is a milestone in the former PTT’s 100-plus-year history.

• Market Impact: High on the Italian telecom services market, because competing ISPs and operators will now have a new framework for negotiating access terms to Telecom Italia’s national network infrastructure, including the all-important last-mile bottleneck. Overall, this event should drive broadband and associated services in Italy, with access being granted to the competition under the same terms as Telecom Italia’s retail divisions. This event heralds a trend that is likely to see other European incumbent carriers follow suit to separate infrastructure divisions from commercial activities under EU and local regulator pressure.

Recommended Competitor Actions

• Competitors need to be communicating their own views on a reasonable wholesale access framework to AGCOM and Telecom Italia, including suggested product ranges (i.e., LLU, line rental, number pre-selection and bit-rates), pricing structures and terms and conditions (i.e., SLAs, provisioning times, compensation for outages, monitoring and repair/troubleshooting).

• Any past unfair treatment by Telecom Italia, such as delayed LLU provisioning, should be highlighted with the request in place to prevent future repeat cases. Now is the time for competitors to make their voices heard to assist with the process of defining Open Access’ portfolio.

• This is good news overall for the alternative providers in Italy, because one of Telecom Italia’s main competitive advantages (i.e., ownership of the PSTN) is being removed. However, competitors will still need to think outside the box to develop and launch aggressive products using innovation and NGN investments to gain an upper hand.

• Telecom Italia still has the advantages of operational scale, brand and market share, but in fact, its sheer size can be used to the advantage of the smaller, more nimble new market entrant to identify and execute either into niche markets or into emerging technologies (e.g. FTTx, FMC and unified communications).

• Competitors are warned that Telecom Italia will have greater market freedom to launch products with less pressure coming from AGCOM and the EU. Therefore, Italian alternative players should be embracing quadruple play, FMC, unified communications and Web 3.0, to make an attack ahead of the former PTT’s retail operations.

CLIENTS ONLY

Competitive Positives and Concerns

Recommended Vendor Actions

| Client access - Full report in Consumer Broadband Services - Europe | More information
| Client access - Full report in Business Telecom Services - Europe | More information

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