Hutchison Whampoa’s Italian Telecom Challenge

When Hutchison Whampoa went into Italy in 2003 with 3 Italia, its 3G mobile operation, Hong Kong tycoon Li Ka-shing was betting he would be ahead of the game, enjoying first-mover advantage and laying claim to trend-conscious Italian consumers. But today his venture is under threat from new entrants and existing operators, who are beginning to counter the Asian interloper, offering a wider range of converged fixed and mobile services and banking on their fixed-line network – something that Hutchison Whampoa lacks in Italy.

Italy is crucial to Hutchison’s global telecoms strategy. Although the Hong Kong-based conglomerate claimed 17.6 million customers worldwide in at least 10 countries, some 8.18 million, or more than half were in Italy, pushed by personalities like Paris Hilton and the raunchy Italian comedy actress Luciana Littizzetto.

However, at least eight new operators have already or are planning to start service in Italy this year after becoming mobile virtual network operators or MVNOs -- service providers offering basic and value-added mobile services by renting capacity from network operators. In addition, big supermarket chains such as Conad, Carrefour, Coop, and utility operators such as the national post office Poste Italiane, Autostrade. have also entered the MVNO fray

Although it is the biggest 3G market in Europe, Italy only started opening up to the network operators last summer. They see 3 Italia as vulnerable because its so-called “killer app,” mobile television, hasn’t been and probably won’t be successful. Instead, they say, the next big thing for 3G is in mobile internet that can link up users with even faster fixed networks.

The ability of the new mobile virtual network operators and existing operators to offer this "quadruple play" model, which gives customers a wide-ranging package of home broadband and voice, TV content over the internet and mobile services, is making life difficult for any operator solely dependent on a mobile network – as Hutchison does. This could further frustrate Hutchison’s ambition to sell or float its global €20 billion 3G business after already failing once to sell part of the venture through a listing.

Industry analysts say high-speed internet connection, both at home or mobile, could become the crucial factor in Italian's competitive telecom arena, where mobile penetration reaches a startling 150 per cent. Hutchison chose to use its mobile TV as a consumer lure since its 3G service debut in its 10 global markets in 2003.

As an example of the competition 3 Italia faces, Telecom Italia Mobile (TIM) the la rgest mobile operator with 40 percent of the market and more than 6.3 million of its customers on 3G, is offering a quadruple-play service called Unica, which gives customers a single phone that can double as a cordless phone at home connected through Wi-Fi, and mobile GSM on the go. The service also includes broadband internet access and internet TV. TIM had been restricted by the regulator to only offer “Unica” on an experimental basis allowing it to sign up to 30,000 subscribers since launch in October last year up to first quarter this year.

"Our vision is to push voice service on mobile, and make value out of using fixed liner internet, the idea is [also] to bundle fixed internet with mobile internet," Fabrizio Gorietti, TIM's head of domestic mobile services marketing, told Asia Sentinel in Rome.

"Competition is strong [in the mobile market] where there is pressure on tariff; we want to compensate this with this amount of traffic volume from fixed line [services]," Gorietti said.

In fact, Telecom Italia’s recent announcement of its restructuring plan, which involves cutting 5,000 employees and integrating its fixed and mobile divisions under one roof, will probably accelerate its offering of converged fixed and mobile services, leaving 3 Italia under pressure to squeeze out more margin amid intense competition at home.

Meanwhile, consumer interest is growing for Vodafone Italia’s 3G mobile internet and email applications, said Silvia Candiani, mobile marketing Manager. The Italian arm of the UK mobile giant has signed up Tiscali, an internet and internet TV provider, as its MVNO. Also a pure mobile operator when it first entered the Italian mobile market, Vodafone has taken a different path than Hutchison by actively snapping up fixed network players in the market. It has bought Swedish telecom company Tele2’s broadband business in Spain and Italy in 2007, giving it a broadband foothold in the market.

3 Italia executives in Italy and group Hutchison Whampoa officials both declined comment. But what the group does with its Italian mobile business is telling in terms of the group’s overall direction of its global 3G strategy in its other nine markets.

Italy has always been touted by Hutchison group managing director Canning Fok as the group’s leading performer among its portfolio of ten 3G markets. Its business performance in terms of how much each 3G user spends on using more expensive data services, or how much they spend every month on these services are often announced during the group’s financial results.

Hutchison already tried but failed to list its Italian mobile business in 2005, only to discover that investors were cool to the idea. The issue of listing its 3G units in Italy and UK seems to have come off management’s agenda. At the group’s recent annual results in March, management said that its 3G business, which had racked up losses of US$16 billion since 2002, would show an operating profit next year. In an effort to prove that the Italian business is still desirable, management said they had frequently received expressions of interests from potential buyers.

Yet, given the increasingly competitive environment of the Italian market, the entry by fixed-line operators into the mobile space – and mobile operators building up on their fixed network capabilities – all but corners Hutchison’s 3 Italia as the lone, pure mobile player potentially left behind, if the Italians increasingly opt for an integrated fixed and mobile service provider rather than paying separate bills to two.