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Summary

On January 30, 2018, Telecom Italia (TIM) announced its proposal to the regulator, AGCOM, to voluntarily legally separate its network infrastructure from its retail business. This follows years of pressure from the Italian government, the regulator, and competitors. A dedicated company, fully owned by the group, will look after TIM's network assets and provide equal access to all operators. The plan will be reviewed by the government and AGCOM, and will be further discussed at the company's board meeting on March 6, 2018.

AGCOM will need to ensure the new infrastructure business faces appropriate regulation

TIM's plan to put its national fixed-line network into a legally separate company should ensure equal access to all operators, as well as guarantee the quality of the network and future investments in the rollout of ultrafast broadband. In particular, this should create greater flexibility for the company to adapt to technological and competitive changes in the marketplace.

The company will be expecting this new proposal for a separate infrastructure business to the address competition concerns of critics, and also to put an end to calls for TIM's assets to be combined with Open Fiber's to avoid duplication of resources. Open Fiber is a joint venture between state-owned utility Enel and state lender CDP which began rolling out a fiber optic network across Italy in direct competition to TIM. By creating a voluntary proposal, TIM also removes any uncertainty of future strict regulatory actions by AGCOM, thereby creating a more stable investment environment.

This is just the start of a long process which will still take several months before the final plan is agreed and the new business unit is created. The proposal needs to be approved by the regulator and the government, and will be discussed further at the next company board meeting in March. Despite being a step in the right direction towards improving competition in the sector, the infrastructure unit will still need to be properly regulated by AGCOM. The regulator will need to ensure the wholesale arm offers a sufficiently wide range of wholesale services, implements cost-oriented pricing, maintains a satisfactory level of service quality, and pursues an effective investment strategy for this proposal to be a success.

How best to guarantee nondiscriminatory access to essential resources such as a dominant operator's network is a topic that has been high on the agenda for many regulators for some time. There are varying degrees of separation being adopted around the world and the issue has seen increased activity in countries such as the UK, where BT reached an agreement with Ofcom to legally separate from Openreach. Separating the wholesale and retail operations of an operator is, however, far simpler to set out and more complex to implement successfully in practice. Some regulators have struggled to find a perfect solution and have had to modify previous decisions over time. This has been true in the UK where the commitments governing the separation of Openreach from BT had to be strengthened in 2017. Similarly, AGCOM will need to look at TIM's proposal closely to ensure the commitments it has made serve the sector well.

Appendix

Further reading

Italy (Country Regulation Overview), TE0007-001202 (November 2017)

Global Experiences of Functional Separation and its Impact on Competition, TE0007-001172 (December 2017)

Author

Sarah McBride, Analyst, Regulation

sarah.mcbride@ovum.com

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