On 16 October 2017, the Italian government notified Telecom Italia that it had exercised its “golden power” amid concerns about French media group Vivendi’s control over the Italian telecoms incumbent.
The policy tool enables the Italian government to veto certain decisions at Telecom Italia, such as asset sales and mergers, which may impact national security. This may include activities related to Telecom Italia’s fixed-line network, as well as the subsea cables deployed internationally by Telecom Italia’s Sparkle unit. Furthermore, the company also works closely with the Italian military via its Telsy unit, which provides encrypted communications systems and software to the Italian army. It is the first time that the Italian government has activated the golden power, since it was introduced in February 2014.
Telecom Italia must invoke a series of organisational changes, as a consequence of the Italian government’s decision. Firstly, all matters related to national security at Telecom Italia must be handled by an Italian citizen, who has Security Clearance, and is approved by the Government. The Italian government will also appoint the head of a new organisational unit, which will be involved in decision-making processes related to strategic activities. Telecom Italia has 90 days to comply with the requirements.
The Italian government’s decision is the latest attempt to reduce the influence of French-owned Vivendi on strategic Italian assets. In April 2017, the Italian telecoms regulator AGCOM ruled that Vivendi’s 24.9% stake in Telecom Italia and 28.8% stake in Mediaset contravened the country’s Gasparri law, which is designed to protect media pluralism from the creation of dominant positions. Five months later, Italian consumer regulator Consob ruled that that Vivendi had de facto control over Telecom Italia despite the French media group’s minority stake. Both decisions were met with legal challenges from Telecom Italia and Vivendi, meaning that uncertainty over the ownership of Telecom Italia is set to continue.
In the short term, the aforementioned legal challenges and Italian government’s decision to exercise its special powers is unlikely to have an impact on Telecom Italia’s performance. Telecom Italia performed well in Q2 2017, despite the continued uncertainty surrounding its ownership. The operator added 535k mobile subscribers, while fixed broadband losses continued to slow underpinned by Telecom Italia’s high-speed broadband rollout. IHS Markit expects the improvements in Telecom Italia’s performance to continue into Q3 2017 and Q4 2017.
However, the Italian government’s decision to exercise its golden power threatens to destabilise the long-term strategy of Telecom Italia. This strategy focusses on the convergence of telecoms and media, which places an increased dependence upon Telecom Italia’s relationship with Vivendi. In September 2017, Telecom Italia’s Board of Directors approved the plan to create a joint venture with Canal+ (a subsidiary of Vivendi). This would enable Telecom Italia to launch an updated pay TV proposition, leveraging Canal+’s pay TV experience and close relationship with content partners. But, the increased influence of the Italian government on Telecom Italia’s strategic decisions now questions the viability of the JV.
The uncertainty around Telecom Italia’s relationship with Vivendi creates opportunities for other Italian operators, namely Wind Tre. IHS Markit estimates that Wind Tre has 27.13 million mobile subscribers, but only 2.37 million fixed broadband households. This provides the operator with an opportunity to target existing mobile subscribers with its fixed broadband service. Recent moves, such as the launch of Tre’s first converged fixed and mobile tariff, in addition to the extension of Wind Tre’s partnership with Open Fiber, should help the operator to increase the number of households that subscribe to both mobile and fixed broadband services. However, IHS Markit believes the operator is still held back by its lack of an attractive content offer.