Italy: Telecom Operators Eye M&A and Partnerships in Challenging Economy

Synopsis
At the end 2012, Italy was the fourth largest telecom market in Western Europe, with revenue of $44.5bn. We expect Italy’s total market revenue to decline, shrinking in US dollar terms at an annual rate of -0.3%, mainly due to the negative performance of the mobile sector. The slow recovery of the Italian economy from the recession will result in sustained price competition among operators, maintaining pressure on profitability levels. The strongest opportunity for growth will come from mobile broadband demand. Further consolidation is expected, presenting opportunities for investors.
Scope
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Summary
The Italian telecom market generated $44.5bn in service revenue in 2012, 8.5% less than the previous year. Mobile data posted substantial growth despite the overall decline, generating $160m more revenue in 2012 than in 2011. The growth of HSPA and 4G mobile broadband, with the increased uptake of data-centric devices such as tablets and smartphones, are the primary drivers for mobile data revenue growth. In the forecast period, besides mobile data, broadband Internet will be the other major contributor to market growth. Nonetheless, fixed broadband growth in Italy will be lower than in the other major European countries due to delays in the rollout and to lower penetration of fiber-based next generation networks (NGN). Whereas for Italy we forecast fixed broadband revenue to grow at a 1.7% CAGR in 2013-2018, we expect the segment to grow at a 4.4% CAGR in neighboring France and at a 3.3% CAGR in Spain in the same period. The commoditization of fixed voice and fixed-to-mobile substitution has meant that revenue from fixed circuit-switched voice has been in decline since 2006. Revenue from this segment is expected to drop to represent only 13% of total communications revenue in 2018. Over the 2013-2018 forecast period, we expect the overall communications market to remain flat, with revenue still at approximately $43.8bn in 2018.
Reasons To Buy
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