Consolidation Brewing in Italian Internet Market

Two of Europe's more attractive take-over targets, Tiscali and Fastweb, are reportedly in merger talks to create the third-largest telecoms group in Italy. Pan-European internet-service provider Tiscali, and Italian alternative telecoms operator, Fastweb, are in talks about a possible merger, which could involve a share swap, the daily Finanza e Mercati reports. The paper adds that the chief executives of both companies have met, and that investment bank Goldman Sachs is working on a merger project, which has been going on for months.

Outlook and Implications

• Has the Italian Market Shut? A potential merger between the two would make it harder for any company to snap up either Fastweb or Tiscali. For an Italian market with very few big players, the prospect of the unavailability of the two firms means that Telecom Italia and Vodafone will remain the only big European operators (among the tier-1 players—Deutsche Telecom, France Telecom, Telefonica , Vodafone—and tier-2 players—British Telecom, Telecom Italia) with a footprint in the country's residential telecoms market. In contrast, the U.K. has five players, while France, Germany, the Netherlands and Spain have four players each (see Europe: 30 June 2006: Consolidation in Europe's Telecoms Industry). The alternative Italian Telecom company, Wind, has fallen into the hands of the Orascom group and is increasingly seen more as a strategic player for a pan-Mediterranean telecoms operation.
  

• Ideal Takeover Brides: Fastweb and Tiscali have both been seen as susceptible to a takeover by any of Europe's bigger players. Until recently, Fastweb has been the darling of companies eyeing the Italian market. Its success at rolling out an expansive fibre-optic network and the seeming ease with which it has provided VoIP and triple-play across Italy have marked it out as a viable takeover target. The company has been quick to cash in on success, announcing plans in January this year to become a quadruple-player by launching Italy's first MVNO. Last November, Britain's BT denied speculation that it was eying Fastweb (see Italy:18 January 2006: FastWeb Mulls MVNO Roll-Out, Plans Quadruple-Play Servicesand:Italy 18 November 2005: BT Confirms No Interest in Acquiring FastWeb). Similarly, Tiscali's assets across Europe have attracted interest from several players, who view it as a perfect route for entering several European internet/broadband markets concomitantly. Its U.K. operation has been the most sought after; as mobile operators jostle for broadband assets (see Europe: 10 July 2006: Tiscali Denies Takeover Talks; Plans Wireless Expansion and United Kingdom: 24 April 2006: Vodafone Denies Tiscali Broadband Bid Speculation).
  
  

• Merger of Equals: A merger between Fastweb and Tiscali would hardly be surprising, considering that the companies are a good match for each other. Fastweb would bring a robust and growing customer base in Italy, while Tiscali would supply an extra footprint from its European operations. So far, Fastweb has been limited to its Italian market, although it has signalled its intentions to enter the U.K. market. In contrast, Tiscali has been a key player in the European internet market and currently operates in Italy, Germany, the Netherlands, the U.K. and the Czech Republic. The company is also actively rolling out local loop-unbundling access in a bid to counter the decline in its dial-up-internet customer base. Both companies also share similar operational figures, although Tiscali's 2.6 million dial-up customers give it a significantly higher customer base (see Europe: 16 November 2005: FastWeb Considers U.K. Start-Up).