Analysts: Three Italy, Wind merger pressures rivals, but regulator clearance not assured

Vodafone Italy and TIM will need to get creative in terms of their customer acquisition strategies to remain competitive when Three Italy and Wind complete a merger, an IHS Technology analyst said.

Pablo Tomasi noted that Three Italy has been the only operator in the market to successfully add new subscribers in recent quarters, and said rivals Vodafone and TIM must respond with innovative strategies to win over new customers and stem churn.

The rival operators have struggled because 4G has not proven "a strong differentiator of their offerings," Tomasi said in a research note.

Three Italy owner Hutchison Whampoa and Wind owner VimpelCom last week agreed to combine their Italian businesses into a 50:50 joint venture, in a move that will reduce the number of operators in the market from four to three. The pair said the move could take up to a year to complete, including the time taken to clear regulators.

Tomasi backed the deal to be approved by regulators, citing similar transactions in Austria, Ireland and Germany where the European Union has given a green light. "Competition will remain healthy in the Italian market as the new player will not overwhelmingly dominate the market and Italy has an active MVNO sector," he said.

The merged company will also still face significant competition from TIM in terms of providing multi-play services, Tomasi said. "[T]he merged company will face formidable competition with TIM already offering quad-play services in partnership with Sky and having also signed deals to provide high quality video content with Netflix, and Mediaset."

However, CCS Insight network operator specialist Kester Mann was less confident that the deal will be cleared by competition regulators.

While he agreed that the deal mirrors previous moves in other markets, he said that "recent comments emanating from Brussels suggest growing concern over moves to cut the number of competing providers." Rises in consumer prices in Austria are at the heart of those concerns, Mann said, while recently appointed EC competition commissioner Margrethe Vestager "believes that mergers can be harmful for investment and innovation." That belief could also have implications for Hutchison Whampoa's planned acquisition of O2 in the UK, Mann said.

Pyramid Research's European research director, Pablo Iacopino, said the Italy deal is different from past consolidation moves because "Italy is the first country where the merger involves large fixed operations and a convergence strategy."

Iacopino predicted the merger will have "significant implications on the Italian telecoms market over the next years," and agreed that the deal "will make the outlook more dynamic and challenging for service providers", while also potentially unlocking convergence opportunities.

For more:
- visit IHS Technology's site
- see this CCS Insight blog
- view this Pyramid Research article

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