The Italian telecom market might become much less competitive in the near future with the creation of a new monopoly, if a controversial plan to create a national broadband operator goes through, one that would see Telecom Italia (TIM) merging with Open Fiber, one of its only rivals on the broadband market. For his part, TIM CEO Luigi Gubitosi is extraordinarily upbeat about the prospects and is expecting the project to come to pass soon. Even so, these expectations could be immature, given that resistance against the merger is growing, writes Colin Stevens.

On the surface, however, Gubitosi has good reason to be optimistic at the moment. The Italian government is more than enthusiastic about the deal, having been the driving force behind it since 2018. Then, in August this year, Rome approved the proposed ownership plan for the post-merger company that was drawn up by state-owned investment bank Cassa Depositi e Prestiti (CDP). According to press reports, CDP is the main proponent and guarantor of the plan that would see the emergence of AccessCo, a unified national broadband network to dominate the market.

The details are still being negotiated behind closed doors by the would-be partners, a group that also includes the Italian energy giant Enel, which controls around 50% of the Open Fiber stock, with the other half in the hands of CDP. In this scenario, TIM would eventually take majority ownership of the unified network, which the government hopes will accelerate Italy’s sluggish development of Internet infrastructure – an issue that has plagued the country for years.

Like other Southern-European countries, Italy is on the wrong side of the digital divide that cuts across Europe, lagging well behind Northern and even Eastern Europe in terms of both access and speed. The government’s reasoning is that the sheer scale of the new national provider will permit it to make massive investments in FTTx technology that the sector desperately needs. While Telecom Italia will be in charge of the proposed company, the authorities promise to put in place a system of regulations and multiple shareholders to keep them in check. 

The case against monopolies

But while the Italian government might see the merger as the silver bullet to improve the country’s Internet access, others are not so convinced. Angelo Cardani, at the time president of AGCOM, the regulator for the Italian communication market, in 2019 slammed the merger as a “backward step” for the industry, warning that the lack of competition will do more to stifle innovation and progress than promote it.

Cardani made his standpoint clear, but only weeks later his mandate as the head of AGCOM ended and the new president, Giacomo Lasorella, has been conspicuously silent on the matter. Lasorella is seen as an associate of Luigi Di Maio, a popular politician who previously served as leader of the anti-establishment Five Star Movement which currently forms half of Italy’s coalition government. 

Nevertheless, Cardani’s warning that the merger would create the opposite outcome of what Rome hopes to achieve is nothing to sneeze at. Over the last two decades, few industries have proven the beneficial effects of competition more than telecommunications. The countries routinely ranked among the best in terms of Internet access and quality are almost without exception countries with robust competition in their telecom markets. 

In the US, the geographical divisions between companies have created a pseudo-monopoly in which less than a third of the population has a choice of Internet provider. This has caused the US to drop out of the top 10 in recent years and is now trailing Hungary and Thailand thanks to broadband speeds that were unimpressive even 15 years ago. While Italy’s size and geography aren’t quite comparable to those of the USA, a monopoly would still create second class netizens in the country’s remote and mountainous regions, where improving the infrastructure of users who have no other choice is hardly a priority. 

Match point antitrust rules?

However, the biggest hurdle in AccessCo’s creation is undoubtedly antirust watchdogs. The European Union’s antitrust arm is known for routinely opposing such disruptive mergers, particularly in the tech and telecom industry. And despite current deliberations being held in private, the message conveyed through unofficial channels strongly indicates that it will do so again in this case. According to unnamed officials, the Commission’s view on the matter is that the merger would evidently create a monopoly and reverse two decades of deregulation. Since Italian antitrust rules closely mirror EU ones, there is little reason to expect a different outcome should the case come before the national authority.

The confidential revelations wiped 7.4% off Telecom Italia’s shares, and despite Italian Finance Minister Roberto Gualtieri’s hasty assurances that he has “no awareness of a potential EU veto”, Brussels’ decision seems already predetermined. In its 'Connectivity for a European Gigabit Society' policy, the Commission has previously recommended the exact opposite of what the AccessCo merger proposes, encouraging the strategy of “unbundling” to be extended in the broadband industry and proposing measures to foster the development of genuinely competitive wholesale broadband markets. It stands to reason that the Commission is highly unlikely to renege on these principles, or grant an exception to Telecom Italia. 

Right reasons, wrong execution

The following months will prove crucial for the future of Italy’s telecoms market – and digital future. The country is right to make better internet a priority, and yet is taking the wrong approach. Even if an agreement is met by all the partners in the merger and even if the new AGCOM council gives its blessing, the European Union is still more likely than not to oppose AccessCo’s creation. The Italian competition authority would be wise to join the EU as well. As it stands now, the most important people in Italy’ telecom industry are working hard on a bad plan the only redeeming factor of which is that it’s probably doomed to failure from the start.