Milan, Italy: TI, Metroweb & Fastweb - Strange Goings On
Telecom Italia announced today a 15-year deal to use the metro fibre of Metroweb to deploy its next generation 50-meg VDSL service to 70k homes in the city of Milan.
This isn’t so funny for Fastweb investors who use the same fibre to deliver triple play services to the same residencies in Milan that TI are targetting. I hear on the jungle grapevine that the Fastweb CPE only allow a max of 20-meg internet to the home. In some areas of Milan Fastweb has a market share in excess of 50% and that is a lot of customers for TI to churn. The Italian triple play is especially attractive because there is no CableTV competition; the only other PayTV is from Sky Satellite and mighty News Corporation.
The Metroweb network does not enter the buildings. It is safely buried under the pavement in ducts about two metres away from the buildings. Fastweb connects the fibre/duct network to the risers in the building – if there is enough demand. The barrier to entry to the rest of the industry players has always been the acquisition of permits to hook up the buildings and of course access to the Metroweb network. However Telecom Italia appears now to have broken that stranglehold.
It should not be a surprise to any student of the Italian communications market that the history of Metroweb and Fastweb is a tangled affair bringing together private entrepreneurs and the city of Milan.
Fastweb originally started as a brand name of e.Biscom which was 66% owned and led by a group of Italian entrepreneurs including Silvio Scaglia (ex-Vodafone Omnitel and now owner of Babelgum), Alberto Trondoli and Francesco Micheli. The other 33% owner was the City of Milan through its electric utility, AEM.
Fibre was laid throughout the City of Milan and this fibre was owned by Metroweb which in turn was owned 66% by AEM and 33% by e.Biscom. The fibre was leased to Fastweb and others, although Fastweb made up 80% of the revenues of Metroweb. e.Biscom was hit hard by the bubble and eventually plans had to be scaled back.
Eventually in a complicated transaction AEM exited Fastweb and bought Fastweb out of Metroweb. By this time, Metroweb had built a 3,200 km fibre optic network spanning every street in Metro Milan and selected backbone routes throughout Northern Italy. In Aug 2006, Private Equity in the form of Sterling Square took majority control of Metroweb for €230m and surprise, surprise Alberto Trondoli returned to head the company.
At around this time it was rumoured that Fastweb was up for sale: Vodafone and Sky although presumably having huge synergies allegedly looked at the company and decided not to bid. Eventually, Fastweb found a buyer offering a decent price in the form of the Swisscom who offered €3.1bn plus the assumption of another €1.1bn of debt for 82.4% of the company. The Swiss PTT had money literally burning a hole in their pockets after being turned down by their main shareholder the Swiss government in several Euro acquisitions. The deal was completed on 18th May with Swisscom taking 82.4% ownership and Silvio Scaglia exits with his millions.
It strikes me as more than a slight coincidence that less than two weeks later the stranglehold of Milanese Fibre held by Fastweb was broken. Someone has won out big time here and my guess it is not the shareholders of Swisscom or the Milanese citizens. Fastweb is currently trading at €40.74 well below the €47 that Swisscom paid.
Hat Tip to Stefano Quintarelli for his more than valuable recent assistance and by the way his campaign for FTTH in Italy is more than brilliant.
As an aside, one of the more interesting characters for UK readers to emerge out of Fastweb was the ex-CEO of Bulldog Emanuele Angelidis who I presume was recruited to solve the customer service issues and launch IPTV.