Author: | Published: 2 Feb 2000
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By Luca Arnaboldi of Carnelutti, Milan

The introduction of new technologies and the liberalization of telecoms services carried out by the European legislator are key factors to consider when analysing the liberalization process of Italian telecoms services.

In 1992, SIP, a state owned company, was the monopoly provider of fixed and mobile telecoms services with analogic transmission technology (E-TACS). When the Global System for Mobile communications (GSM) became commercially available, SIP, which was acting under an old grant from the Ministry of Communication concerning mobile services provided with TACS standard, offered new services such as fax services and e-mail. The Antitrust Authority started an inquiry, and in October 1993 declared SIP to be in a dominant position in the market of mobile telecommunications services market. Following this decision, the Italian legislator, by DPR 2/12/94, opened the market for the supply of mobile services with GSM technology, and another provider, Omnitel, was licensed to provide services with GSM technology.

Finally, the Italian legislator implemented with law n.189/1997 the EC Directive 96/2 on mobile and personal communications. This law formalized the liberalization of the mobile telecoms services by opening the market to new competitors. In April 1998, a new frequency spectrum became available for digital mobile services using DCS 1800 technology, and as a consequence Wind and Blu — were licensed to provide mobile telecoms services.

Furthermore, decision 128/1998 stated that member countries must provide for the introduction of new standard UTMS (Universal Mobile Services Telecommunications System) before January 1 2002. This will offer users new services such as mobile-office, virtual banking, automatic payments and videoing-conference.

Services and strategies of the Italian mobile telecommunications providers

Telecom Italia Mobile (TIM), Omnitel, Wind and Blu in Italy are the providers licensed to supply mobile telecoms services.

TIM, a company controlled by Telecom Italia, is the largest operator of mobile telephones in Europe and the third largest in the world, with respect to the number of clients. TIM provides services with TACS, GSM and DCS 1800 and was the first to offer prepaid cards, such as TIM CARD and Ricaricabile TAC, for mobile services. By offering prepaid services, TIM eliminated the flat charges of the monthly mobile phone bill, created a new segment of the market and was able to expand its market share. From the beginning of its operations TIM took care of marketing and distribution strategies, creating a chain of corporate stores owned and managed by the company, and retail franchises located throughout Italy.

Omnitel, TIM's main competitor, has offered its clients GSM mobile services since 1994. It was the first operator to offer a specific rate plan called "personal", which gives the customers the choice to decide which part of the day should be considered off peak for billing purposes. By an agreement signed in March 1999 with Cisco System and Pagine Italia Fininvest, Omnitel will launch internet services on a WAP (Wireless Application Protocol) platform ensuring easy access to evolved voice, data and video services.

Wind, the third provider of mobile services, offers a competitive integrated "fixed and mobile" service to its customers and has in a relatively short period of time, reached 800,000 customers. This service allows Wind's customers to call each other at a price that is discounted if compared to that of other providers.

All three competitors offer their GSM customers the Short Message Service, which allows a phone to send messages to another GSM phone or receive information such as stock market data or timetables for flights or trains.

The most recent provider licensed to supply mobile services, Blu, will start its operation by mid-2000.

Foreign investments in Italian providers of mobile telecommunications services

The liberalization of the mobile telecommunications services allowed new competitors to enter the Italian market, and it is particularly interesting to observe how, after years of monopoly, Italy developed and opened its telecom sector to foreign capital and investors. As a matter of fact, the Italian mobile telecommunications providers are either part owned or controlled by foreign investors or they are a joint venture between Italian and foreign corporations.

The largest Italian provider of mobile telecommunications services is TIM, which was created in 1995 as the provider of mobile services for Telecom Italia. TIM went public by means of various public offers, but 60% of its shares were kept by Telecom Italia. In February, 1999 Olivetti announced its hostile take-over bid for Telecom Italia, in the most important financial operation in Italian history. As a consequence of the successful result of the bid, TIM is currently controlled by Olivetti through Telecom Italia. TIM, the first European provider of mobile services, has more than 14 million customers and is able to provide services with TACS, GSM and DCS 1800 technologies. TIM is also a partner of IRIDIUM, the company that provides global mobile services through a network of 66 low-earth orbit (LEO) satellites, which was forced to file for Chapter 11 protection in the US. TIM stocks are traded on the most important European markets.

The second largest provider of mobile services in Italy is Omnitel, which was licensed to provide mobile telecommunications services with GSM technology in 1994. Today, Omnitel provides services to 8 million customers with both GSM and DCS 1800 technologies. Omnitel is a private corporation, and its main shareholders are Mannesmann (53.7%), Bell Atlantic (23.1%) and VodafoneAirTouch (22%). Originally, Mannesmann's stake in Omnitel was owned by Oliman, a joint-venture between Olivetti e Mannesmann AG, but Olivetti's stake in Oliman was sold to Mannesmann when Olivetti succeeded in its takeover of Telecom Italia. Omnitel represents not only a successful venture of foreign capital but also the apex of the Italian liberalization of the telecommunications sector, because the second Italian provider of telecommunications services is not only completely private but is owned and managed by foreign corporations.

The third Italian provider of mobile telecommunications services is Wind, which was licensed in November 1997 to provide fixed and mobile services. Wind, a joint venture between ENEL (51%), Deutsche Telekom (24.5%) and France Télécom (24.5%), has more than six hundred thousand customers for its mobile services. Notwithstanding ENEL's majority stake in the company, a shareholders agreement signed by the three shareholders limits its powers to manage the company. It should be noted that France Télécom, ENEL and Wind requested an arbitration proceeding against Deutsche Telekom with reference to its "white knight" role in Telecom Italia's take-over bid, and more specifically for breach of the covenant not to compete present in the shareholders agreement. Wind's joint-venture organization represents the third option of foreign investment in an Italian mobile telecommunications provider. The shareholders reflect the strategic idea that supports Wind, where the main investor, an Italian state-owned company, owns the infrastructure to provide telecommunications services and foreign partners provide the company with the necessary know-how to provide the telecommunications services. Although ENEL was a state owned company at the time of the negotiation of the joint-venture, it will be partially privatized.

Although the Italian telecommunications market seems to be very competitive, and three players are already present, there are others waiting for new licenses to be assigned. Blu, a private corporation, was licensed in July 1999 as a fourth GSM provider (with DCS 1800 technology). It plans to start its commercial activity by March 2000 and will be the first provider to utilize the Wireless Access Protocol (WAP) platform technology. This technology will allow the reception and processing of data at a very high speed and will enable the mobile terminal to interact with the internet more efficiently, even more, it will allow the handset phone to operate as a palm computer to store different kinds of information, such as appointments or addresses. Blu's shareholders are, among others, Società Autostrade (32%), British Telecom (20%) Distacom Hong Kong (9%), Benetton Group (7%), Mediaset (7%), Banca Nazionale del Lavoro (7%), Italgas (7%) and Caltagirone Group (7%). Blu represents the latest example of foreign direct investment in an Italian telecommunications providers. It differs from Wind's model, only because of the participation of the state controlled company.

The Italian telecommunications market has been an example of the European liberalization of telecommunications services, because, on one hand, it has allowed foreigners to invest in Italian companies, and on the other, it has allowed foreign corporations to operate in the Italian market, with different degrees of involvement, as an Italian corporation would.

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