The closing of the Tim com Kkr operation announced for July 1st by the CEO Pietro Labriola he actually opened the new era of Tim: the CEO told the employees that “with a more solid financial structure”, the company “will be able to be a protagonist in new technological and business scenarios”. Speaking at Telco per l’Italia, Labriola clarified: “What I wrote to all my colleagues should not be surprising: we have been saying for three years that, if we want to give a future to our company and our group, we must take the burden of debt off our shoulders. We had almost 21 billion euros of debt, we paid 1.2 billion euros of interest per year at a rate of 3.7%. With a financial market that was worsening we would have gone to interest rates of 7%: we could not give an industrial and strategic perspective to our company, which we instead did by dividing ourselves into two completely different businesses.”
The investment in fiber is massive and equivalent to that made at the time for copper, Labriola recalled, when the company, however, was a public concessionaire and the economic return was guaranteed.
“Now we are facing a new investment cycle, but after the liberalization of the market. Fiber requires 1.3-1.4 billion euros of capex per year for 7-8 years of investment: figures that are difficult to sustain for a publicly traded company with a retail business. How to justify a 25% capex on revenue? It’s not explainable,” Labriola said.
ServiceCo, the unbundling of the network serves to invest
As a result, Tim has followed a clear market trend that leads to the separation of the infrastructure business from the services business, especially if the former requires large investments and does not have a certain return.
“Separating the networks activity allows us to put aside the infrastructure business, which will be unlisted and continue to invest, initially burning cash; then, once the investment cycle is completed and presumably moving towards a single network, it will become a profitable asset in the long term and attractive for some operators”.
On the other side there is the service business: “I remind everyone that Deutsche Telekom, considered a reference at European level, generates 75% of its ebitda in the USA and only 25% in Germany, which is a country similar to ours in many respects, with 3 operators and a strong Fttc component that makes the roll-out of the Ftth slower”, highlighted Labriola. “ServiceCo has a similar structure, with the bulk of the business generated overseas in Brazil, where our company is profitablebecause it operates in a market with only 3 operators per unit A country with 310 million inhabitants and about 30 times larger than Italy. And where we paid for 5G licenses an amount equivalent to 300-400 million euros, not 2.4 billion like in Italy”, Labriola continued.
Moreover, the CEO of Tim highlighted, Brazil is a consolidated market where 5G is not “the marketing one, but the advanced one of release 16 with very low latency”, which does not yet exist in Italy, preventing the creation of private networks with full functionality. And therefore, Labriola continued, “Tim, like the other operators, must find a way to reinvest in 5G and also have a return on investment.”
The new Tim is also Enterprise
Now what remains of the new Tim in Italy? “All enterprise activity and all consumer activity, but remembering that 70% of the new Tim’s ebitda and cash flow come from Brazil and Tim Enterprise, which are two highly profitable segments and market areas, with expected growth of 4-5% per year,” said Labriola. “This positive outlook is linked to the fact that all software is sold by technology companies in the cloud and telcos will grow in the wake of this business, as well as in the wake of IoT, smart cities and cybersecurity. In the smart city enterprise segment, Tim generates 15 million in revenue per year: Tim Enterprise is a segment with high growth potential in which we want to find a role also, possibly, with acquisitions”.
Then there is the 30% of the activity represented byapart from consumer, in which, Labriola stated, there is no sustainability. But the problem is not company-specificby Tim, because “no operator makes money from this activity: it is a national industry problem and it is also a problem in Europe.”
The fair share: the OTTs weigh on the networks, the EU runs
A reform of the sector is therefore no longer postponable and the paper presented by Enrico Letta goes in the direction of a single European market for telecommunications and consolidation. It remains on the table there question of fair share and therefore of the contribution borne by big tech. From this point of view, Labriola said he wanted to see “the glass half full: today we are finally talking about fair share and consolidation and this means that something is moving, which was unthinkable three years ago“, said Tim’s CEO. “Of course, the path is too slow, but everything the system for defining standards in Europe is obsolete, not adapted to technological evolution. A market analysis that takes two years is equivalent to driving using only the rearview mirror: you define the rules of the future without looking ahead. If the fair share solution arrives in 5 years, I don’t know how many of us will still be here.”
Labriola highlighted: “Tim must invest in mobile network capacity at a rate of 200 million euros per year because of huge volumes of Oct data, but we can’t keep doing this for 5 years. At a minimum, I need to know how much traffic the Ottts plan to add to plan the network upgrade. Which among other things, requires at least 12 months of work, and if a telco fails to make these updates, it risks blocking the telecommunications service in its essential uses. Therefore: the European regulatory apparatus must follow us more quickly. But the first step has been taken: for too long we said that everything was fine when it wasn’t like that at all.”
