General

IPTV Grows in Europe

A well-funded startup has managed an impressive start, growing in part, ironically, thanks to the monopolies that rule its nation.

by Gerry Blackwell [June 30, 2005]

Delivering high-speed Internet, VoIP, and IPTV services over a single broadband IP network makes sense to a growing number of telecom providers, but no major national provider in North America has actually done it yet. A handful of companies in Europe and Asia, however, have.

Pioneering firms such as FastWeb in Italy may be able to teach North American counterparts some useful lessons, especially on how to integrate TV services into the mix—although conditions in overseas market are in some cases markedly different than in North America.

FastWeb, a start-up, was the first to offer an IP-based triple play in Europe. The company was founded in 1999, began offering Internet and phone services in 2000 and added IPTV in 2001. Today FastWeb is in most major cities in Italy. Its network—a mix of fiber to the home and fiber to the neighborhood with unbundled ADSL local loops for the last mile—includes 16,000 kilometers of fiber and passes 5 million Italian homes.

As of March of this year, the company had 542,000 subscribers, 80 percent of them residential, 20 percent business. About 40 percent of the consumer subscribers pay FastWeb for additional TV services beyond the dozen or so free channels included in the company's $31-a-month Basic package. Basic service also includes 300 minutes of high-speed Internet and 150 minutes of phone calling within Italy each month.

Customer take-up of television services has fallen off since last year when FastWeb, as part of a promotion, was giving away premium channels that show professional soccer games. But Alessandro Petazzi, FastWeb marketing manager for IPTV services, isn't worried. Petazzi says the company expects to maintain the current 35 percent to 40 percent penetration of its customer base as it expands into other parts of the country. "That's a very good result for us," he says.

After a recent $1 billion recapitalization on the Italian Stock Exchange's Nuovo Mercato for high-growth stocks, FastWeb revised its expansion plans and now expects to reach 30 million homes by the end of 2006, a target originally set for 2010.

How monopolies bred competition
That a company such as FastWeb should arise first in Italy is not entirely surprising. Market conditions were ripe. The country has no cable television industry and Sky Italia, the satellite provider, had a virtual monopoly on pay TV services until regulatory changes forced it to start wholesaling some of its services to resellers like FastWeb.

Still, founding FastWeb was a gamble. Charismatic co-founder Silvio Scaglia, former CEO of Omnitel, the Italian start-up cellular provider which was sold first to Mannesmann then to Vodafone, reportedly invested his entire fortune in FastWeb.

"I think it was mostly a matter of vision," Petazzi says of the reasons why a company like FastWeb arose first in Italy. "Already in the mid-1990s, there was a vision that this could eventually be done. But at that point, the thought was that the technology was not ready, that 1999 was too soon. The people who founded FastWeb thought it was technologically possible—obviously with lots of capital—to do it then."

The FastWeb strategy and business plan might not work equally well in every country, Petazzi concedes, but it could work well in many. In fact, FastWeb launched a successful operation in Germany, which it sold off early in order to concentrate on the Italian market. The German company continues to grow under the new ownership, Petazzi notes.

FastWeb, based in Milan, began by piggy-backing on a fiber build-out by local power and gas utility AEM S.p.A. FastWeb's holding company, e.Biscom, went public in 2000, raising funds to begin an expansion across Italy. That expansion was hastened by a 2001 anti-trust decision that forced incumbent telephone company Telecom Italia to make ducts laid for an abandoned cable television initiative available to FastWeb.

The regulatory environment has been favorable to say the least—even to the extent of the federal government subsidizing consumer purchases of the FastWeb VideoStation set-top-box as part of its effort to foster the development of interactive television in Italy. The VideoStation unit, which is required to receive the free channels available as part of the FastWeb Basic service, costs consumers about $125 to purchase or $9 a month to lease.

For now, FastWeb has no direct competitors—that is, nobody else offering a triple play service. Its main pay TV competitor is Sky Italia. On the telecom side, its strongest competitors are Telecom Italia and Wind (Wind is a CLEC with mobile and other services in addition to wireline). Both Wind and Telecom Italia have announced intentions to offer TV services as early as this fall. "At some point it will come," Petazzi says of competition on all three fronts, "but for now, they are not in the market."

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