A Wind of Change

Italian Mobile Market Set for Disruption

The Italian telecom market is poised to see significant change in 2017. The merger of Wind and Three has reordered the mobile hierarchy and set the stage for the potentially disruptive entrance of Free Mobile.

Three and Wind launched as a joint venture on 31 December 2016. The merger was a logical move for two companies that would never otherwise have been able to achieve the scale needed to challenge clear market leaders TIM and Vodafone. To satisfy competition authorities, the deal facilitated the entrance of disruptive French provider Free Mobile as a new fourth player.

There’s no denying the size of the new joint venture. With more than 31 million mobile customers, Wind Tre became market leader in Italy overnight. It’s now the third-largest mobile operator in Western Europe, behind only O2 and T-Mobile in Germany. The company also has 2.7 million fixed-line customers, gained through Wind’s Infostrada network.

The new entity also dominates its rivals in terms of network sites and retail outlets, although we expect it to reduce both these totals as part of its efforts to cut costs and to meet the requirement to divest assets to Free Mobile.

The pending arrival of a new fourth mobile provider has raised fears of a price war. Free Mobile wreaked havoc in France following the launch of a hugely competitive service that caught incumbents off guard and saw customers defect in droves to the new entrant.

Although it seems certain to offer keenly priced mobile services that will prove attractive to cost-conscious Italians, Free Mobile will be hard-pressed to have anywhere near the same impact as in its home market. In France, it benefitted from several factors: it could cross-sell mobile services to its existing fixed-line subscribers; it had an established brand; and it could easily undercut rival tariffs that were some of the highest in Europe. In Italy, it will be an unknown player in a market where average spending on mobile services is just €13 a month.

There are already several very competitive offers in the Italian market: for example, virtual provider Fastweb offers a package that includes 6GB of data for just €6 a month. Free Mobile may well be forced to do much more than offer low tariffs to win customers. It will have to work hard if it is to avoid the fate of Blu, a previous holder of Italy’s fourth mobile licence. The company, part-owned by BT, collapsed at the turn of the century and was subsequently swallowed up by the other providers.

Free Mobile’s path will be smoothed by a five-year deal with Wind Tre that gives it nationwide access to the latter’s 2G, 3G and LTE networks. It will also acquire 8,000 sites and spectrum in 2G and 3G wavelengths.

In our view, Free Mobile should also seek to gain wholesale access to either TIM’s fixed-line network or a new fibre network being rolled out by energy supplier Enel. Pursing a mobile-only strategy in a converging market where tariffs are already low would be a huge challenge. Offering bundled services in an effort to mirror its successful strategy in France could take the wind out of rivals’ sails.

This is a concise overview of recent events in the Italian telecom market. CCS Insight will provide further details and comprehensive analysis of developments in an upcoming report. If you’d like a copy, simply contact info@ccsinsight.com.