Telecom Turbulence to Transformation: Navigating Italy's Digital Destiny

Forum Nazionale delle Telecomunicazioni 2023 - Asstel

Insights from Italian Operators

Today, in the splendid setting of Luiss Guido Carli University on Viale Pola in Rome, the Asstel - Assotelecomunicazioni Forum 2023 was presented.

Asstel, amazingly orchestrating Italy's telecom narrative, underscores the industry's collaborative ethos for navigating financial challenges, emphasizing digital upskilling as a catalyst for innovation, and signaling a transformative shift towards strategic investments in emerging technologies for sustained competitiveness.

Against a backdrop of financial strains, including a historic negative cash balance of -3.8 billion euros and challenges exacerbated by a 4.5-billion-euro 5G frequency installment, italian industry leaders call for a new industrial policy to secure the sector's strategic sustainability. Furthermore, the preliminary sale of the newco TIM might be pivotal moment for infrastructure integration.

Finally, from a perspective of industrial and international policy, in addition to the already noted growing domestic attention on regulatory issues and network direction fate, there is also the initial Italian push at the European level in terms of proposals on edge computing and fair share.

Key industry insights converge:

1️⃣ Collaborative Imperative:

• A resounding plea for collaboration emerges as Italy's telecom linchpin. Uniting diverse perspectives becomes non-negotiable for addressing challenges and seizing emerging opportunities.

2️⃣ Digital Skills Drive:

• Asstel champions digital proficiency, echoing across the industry. A collective call emphasizes workforce upskilling as essential for navigating dynamic landscapes and propelling innovation.

3️⃣ Financial Resilience Focus:

• Industry leaders grapple collectively with financial sustainability hurdles. Acknowledging hyper-competition, there's shared recognition for strategic financial planning and resilience.

4️⃣ Innovation Paradigm Shift:

• Embracing a transformative shift, the industry acknowledges that innovation surpasses traditional infrastructure. Essential investments in AI and edge computing underscore the commitment to sustained competitiveness.

In addition to the data from the splendid Asstel 2023 report, perfectly narrated by its President Massimo Sarmi and its General Manager Laura Di Raimondo , below you will find some insights that emerged from the comparisons between CEOs of major operators and stakeholders in the system.

Sky Italia :

• Technological innovation propels growth in key sectors, with a focus on customer inspiration in a commoditized market.
• Innovation commitment, investing in SkyWiFi, user-centric Glass, and original content.
• Challenges in long-term profitability, particularly in broadband despite a 24-36 month payback
• The need for operators to prioritize innovation over price in the telco sector is emphasized, addressing collective responsibility in combating piracy

BT Group :

• Telecom is urged to go beyond infrastructure focus and actively drive the digital transition, ensuring connectivity facilitates real change
• Telecom is positioned as the enabling factor, emphasizing its role in bringing the next level of innovation and value to various industries

Comdata Group :

• Inflection point in the AI revolution, especially in generative AI, presents opportunities and disruptions across services. GAI impacts cognitive activities, interpreting vast unquantifiable data.
• Challenges excessive regulation in Europe and Italy, urging focus on opportunities over strict measures.
• Emphasizes the need for adaptive regulations and employment contracts in the evolving generative AI landscape and changing business models.

Huawei :

• Country-wide digital transformation emphasized for enhanced competitiveness
• Key sectors targeted: industrial automation, healthcare, agriculture, and logistics
• Generative AI's broad impact highlighted in cognitive activities
• Financial stability concerns acknowledged, advocating continuous measures over one-time solutions. Recommendations include infrastructure building, service provision, and education restructuring.
• Closer university-industry collaboration proposed, showcasing joint research examples.
• Historical telecom achievements recalled, emphasizing missed opportunities in 2G to 3G and 3G to 4G transitions.
• Criticism of insufficient 5G infrastructure development in Europe, specifically Italy: delay attributed to telecom policies, high-frequency costs, and missed investment opportunities.

  Vodafone :

• Europe lags behind the U.S. with a $10 trillion growth gap, per capita and market share decline
• Digital platforms crucial for Cloud, GAI, IoT, and quantum computing
• A 10% increase in DESI could yield 7/8 additional GDP points
• Despite digitalization's potential, a huge telecom debt hampers investment
• Telecom struggles to attract investment, suggesting regulatory changes.
• Emphasizes European Digital Single Market, in-country market consolidation, and addressing fragmentation with 97 operators and 587 virtual operators

Windtre :

• Shift from telecom to multiservice, targeting Italian needs in connectivity, energy, and security, including insurance offerings.
• Consumer mobile faces economic constraints with rising costs and competitive pricing pressure in a mature market
• Regulatory constraints make price increases difficult, requiring unsustainable increases across the customer base
• European regulations, like free roaming, and OTT services strain telecom revenue streams
• Telecom's only lever is cutting investments, harming industry quality and competitiveness
• Decline in private investments affects service quality, highlighting the need for regulatory changes.
• Urges regulatory even bigger changes for electromagnetic limits, enabling investments and better services, emphasizing market structure adjustments

Open Fiber :

• Focus on accelerating development, especially in digitalization and PNRR-outlined infrastructure projects by 2026.
• Emphasizes infrastructure development, including fiber installation, as essential for local administrations.
• Challenges in FTTH market with only 20% utilization of available fixed lines for fiber connections, requiring demand stimulation solutions.
• Italy's FTTH market lags with 4 million customers out of 20 million lines, exploring incentives on the demand side.
• Theoretical copper network switch-off could save one billion euros annually and decrease energy consumption (560 GWh) with more efficient fiber networks
• Advocates transitioning to fiber networks for efficiency, economic sustainability, and energy conservation despite current demand challenges.

iliad :

• Optimism expressed for Italy's digital future, noting accelerated 5G and fiber optic development, and improved nationwide coverage
• Italy advances seven positions in digital skills and training ranking, stressing their fundamental importance
• Iliad invests over 4 billion euros in digital competency initiatives, including scholarships, training, and a 200 million euros investment in AI.
• Despite challenges, still optimistic welcoming measures like increased electromagnetic limits and BUL's new strategy focusing on 5G standalone networks.
• Emphasizes the need for a long-term perspective in the telecommunications sector, urging institutions to create a context that maximizes investments for the industry's role in the digital transition.

Ericsson Telecommunications Inc. :  

• Emphasized 4G's historical impact in the U.S., with each telecom dollar leading to a tenfold economic return.
• Highlighted the global 5G gap, especially in Europe (15% penetration) compared to Asia (90%).
• Noted China's 5,000 private mobile networks versus Italy's 11, advocating for an industrial policy like India's.
• Urged European and Italian industrial policies to stimulate demand, proposing a spectrum policy review.
• Called for major Italian companies to invest in connectivity, proposing a "beauty contest" approach for spectrum allocation
• Stressed continuous investment in human capital, noting a lack of incentives for foreign investment despite 45 years as a research center.
• Emphasized the need for all stakeholders to work together to close the 5G gap, leveraging expertise for change in the telecom industry

Fastweb :

• 13 fixed and 9 mobile operators present, a significant increase since 2007.
• Lowest prices in the Western world: 9 cents per gigabyte for mobile, 25 euros for fiber.
• Challenges: FTTH penetration at 20%, lagging behind 50% coverage; Ultra Broadband stuck at 60%.
• Critical need for data transport due to digitalization surge. Data growth: 90% of data built in the last two years, doubling capacity in Italy every 2-3 years.
• Security Concerns: 188 critical attacks last year, ranking fourth globally in ransomware attacks.
• Regulatory Challenges: Agile hyper-regulations impede innovation, requiring extensive verifications before launching new services.
• Proposed Solutions: Incentive operators (do not incentive demand which might lead to opportunistic scenarios), promotion of innovation through AI, and investment in edge computing (to accelerate Enterprises growth and also reduce load on network).
• Call to Action: Collaboration for an Italian innovation ecosystem, emphasis on edge computing for differentiation and network traffic challenges.

TIM :

• Macro-economic challenges in Europe hinder investment pathways.
• Highly competitive market with 5G network plans and regulatory constraints.
• Financial strain: Annual 3.3 billion euros investments face increased costs, overshadowed by rising debt interest.
• Revenue growth dilemma: Innovation alone insufficient, requiring substantial growth to cover increasing costs.
• Infrastructure challenges: Ultra Broadband investment needs face trade-offs for financial sustainability
• Optimism amid challenges: Acknowledgment of government efforts, optimism rooted in hope for accelerated dialogue and decisive actions to overcome hurdles

As Italy's telecom sector charts its course amid challenges and opportunities, one question echoes: How will the industry's collective vision shape the nation's digital future, and what role will each stakeholder play in this transformative journey.

As KPMG Italy , we firmly believe that the future of a telecom company hinges on transforming into tech companies. Whether they are fully integrated digital players, horizontally diversified ecosystem players and digital platforms, or 100% digital and customer-centric entities, or a sophisticated blend of these three models – the players, while awaiting the market and regulatory landscape to shift towards more competitive models, must accelerate the transformation journey towards models closer to hyperscalers/OTT.