Telecom Italia (TI), the incumbent telecom operator in Italy, has reportedly collaborated with fellow Italian carrier 3 Italia to share access sites for radio mobile network. Under the three-year deal, the two companies will share both existing and future access sites covering no less than 2,000 sites in aggregate. Additionally, each operator will host the radio mobile station of its partner with an aim to enhance network coverage in the country.
Through its subsidiary Telecom Italia Mobile, Telecom Italia is the leading supplier of wireless services in Italy with 34.2 million subscribers. The company also has more than 36.1 million international wireless customers, with a major presence in Latin America (especially Brazil). However, subscriber growth has decelerated in the most recent quarter and the company is gradually losing market share to its rivals, including Vodafone (VOD).
Wireless operators across the globe are increasingly converging on network sharing that offers meaningful operating and cost-saving synergies. Telecom Italia is currently focusing on aggressive cost cutting to offset pressure on its topline, primarily due to lower revenue from its European broadband and domestic mobile business segments. The company is rationalizing and streamlining its organizational infrastructure and networks, a move that is expected to yield approximately €1.2 billion ($1.9 billion) in cost savings though 2010.
The network sharing deal with 3 Italia will benefit Telecom Italia on several fronts. In addition to improving network efficiency in both urban and rural regions, the agreement will truncate network costs by 30% (especially site leasing expenses) for each operator and reduce time for future network infrastructure developments.
We maintain our Hold recommendation for Telecom Italia as we envision that operating results through 2009 will be restricted by its exposure to a highly saturated domestic market, recessionary conditions, regulatory pressure on wireless business and increased competition across overseas markets.
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