Telecom Italia chief bemoans ‘market failure’ of sector in Europe
Amos Genish pins recovery hopes on launch of 5G networks
The chief executive of Telecom Italia says there is a “market failure” in European telecoms but the launch of 5G networks offers a chance to restore the sector to growth.
Amos Genish, who was appointed head of the Italian telecoms company in September 2017, warned that change was needed in European telecoms, which has been one of the worst performing sectors for investors. In the year to date, the FTSE Eurofirst 300 Telecoms index has fallen 18.6 per cent, compared with a 9.3 per cent fall for the broader FTSE Eurofirst 300 index.
“The telcos are running out of steam financially and shareholders are voting with their feet. We cannot ignore this market failure,” he said in an interview with the Financial Times. He cited rampant price competition, regulation and the fact that for most telecoms companies in the region, profits were not enough to cover their cost of capitalas causes for concern.
If that were not enough, Mr Genish has also had to deal with a vicious battle between US activist investor Elliott Management and Vivendi, the French company that is Telecom Italia’s biggest shareholder, which erupted just after he was appointed chief executive. Elliott took control of the board in May, but Mr Genish — a personal friend of Vincent Bolloré, the billionaire who was in charge of Vivendi — has remained in charge.
Vivendi publicly supported Mr Genish in September and accused members of the Elliott-backed board of spreading rumours, notably that Mr Genish could leave the business. The French company, which retains a 24 per cent stake in Telecom Italia, could even try to regain board control in early 2019, according to people with direct knowledge of the situation.
Shares in Telecom Italia have fallen 40 per cent since May to a five-year low and Mr Genish admitted that the boardroom turmoil had not helped the company’s recovery efforts. “We have a very fragile governance scenario which is counterproductive and not helpful when we, like all other telcos in Europe, are facing critical challenges,” he said.
However, Mr Genish, a former Israeli artillery captain, said the seeds of recovery for Telecom Italia, and the sector as a whole, lay in 5G — even though the sale of spectrum this month landed it with an unexpectedly high bill of €2.5bn. Telecom Italia and Vodafone acquired the lion’s share of the airwaves, with cut-price competitor Iliad and Wind Tre having to settle for smaller packages.
Mr Genish said the spectrum auction was “designed clearly to enhance revenues for the government” but he had no option other than to bid high. “We paid a premium for a natural future market repair. You will have two winners out of four. You have to take advantage,” he said. “It was painful. It was not expected. As market leader, we could not afford to be out of this game . . . We need 5G to move from a bleeding sector to a winning sector.”
5G promises to boost profitability by drastically reducing the cost of delivering a gigabit of data by up to 70 per cent. It will also allow telecoms companies to sell bespoke services by “slicing” the network to deliver businesses dedicated bandwidth while delivering faster network speeds to consumers willing to pay more. Mr Genish said this would lead to a less crowded market for high-quality mobile services and a “decommoditising” of the product.
The recent change in government in Italy has also added uncertainty to Telecom Italia’s plans to spin off its network business into a new company, with ministers yet to rule on changes to how the telecoms sector is regulated.
Mr Genish said that the regulatory changes could pave the way for a merger with Open Fiber, an independent network backed by government funds and electricity company Enel that was championed by former prime minister Matteo Renzi to spur competition in high-speed broadband infrastructure.
“It more depends on the government to decide the future more than us. We are a willing potential buyer if there is something on the table, but it is up to the government to decide if Open Fiber is needed in today’s environment,” Mr Genish said.