Good evening, and welcome back to Warroom. The telecommunications market, which is decisive in this season of extraordinary technological innovation, is undergoing a phase of profound and complex transformation that combines industrial strategies, market rules, and economic sustainability, closely affecting the competitiveness of the entire country's system. Within this framework, we have the renewal of mobile frequency usage rights expiring in 2029, to be assigned for the next 8 years, which is creating tension in a sector divided between the need for mandatory competition and the equally indispensable necessity to ensure adequate margins for companies, if only to support investments. A budget item, that of profits, which in recent years has been compressed by a prolonged and ruthless race to the bottom on prices that today risks cornering operators, drastically curbing investment capacity — capacities that are vital to withstand international competition in artificial intelligence, cloud, 5G, and soon 6G, and to make the digital transition we have been talking about for years effective, thereby helping Europe recover from the technological gap with the United States and China.
But to invest, companies need to make profits, while fully respecting an adequate regulatory framework. This is not about choosing between competition and investment, but about giving the system a boost in activity and attractiveness for the capital needed to implement an industrial policy worthy of the name. And then there is the perennial, yet ever-present, issue of fiber optics, which, in theory, is already available to a large part of the country but faces structural obstacles in its application, both regarding databases and the actual access to buildings and homes. The result is that out of 80% of lines covered by fiber, only 30% are actually active, and this is not due to high costs or low demand, but to practical impediments in the last mile.
In short, we are dedicating today's Warroom to the Italian telecommunications market, its nodes, and future developments. What is the state of the art regarding frequencies and fiber optics? How can we reconcile the protection of competition with the need for adequate returns for operators, and how will the ongoing TIM-Poste operation be able to give new impetus to the entire sector? We will explore all these issues with the person leading the most important Italian company in the sector. I therefore welcome Pietro Labriola, CEO of TIM and author for Class Editori of an instant book titled “Fiber is not enough,” and we will ask him why it is not enough. Welcome to Warroom, Pietro.
Thank you, Enrico. We were on a first-name basis, so I think we will continue to use the informal “tu” here as well, even in this setting.
Let's start with the renewal of the frequency rights that are expiring. Why is this transition that awaits you operators so crucial?
It's simple, I'd say, because we are always faced with the dilemma as a country: the egg today or the chicken tomorrow. Our country in 2017-2018 chose the egg, in the sense that it charged an exorbitant price — we can say that with hindsight — for 5G frequencies. It was said back then that it was a crazy figure; it was already said back then. But what were the consequences? 2017-2018, almost 9 years have passed today, and we are the country furthest behind with 5G Standalone networks. It's a technical term, but let's say the highest-performance 5G networks. Why? Because companies have limited budgets. If I spend a lot to buy the frequencies, the risk is that I won't have enough money, enough capital to invest in building the network.
To use a comparison, I was fortunate enough to be in Brazil when the chicken was chosen — that is, in 2020 in Brazil, when the 5G auction was held, what was chosen? Not to give the frequencies away, but to provide them at a very, very low price in exchange for the commitment made by operators to build the 5G network. So the operators effectively spent the same amount that might have been spent in Italy just to buy the frequencies, but which was enough to buy the frequencies and ensure that today Brazil is one of the countries in the world with the most 5G Standalone coverage. What is it? So let's try to understand the effect of the chicken. Practically, in Italy, 5G Standalone is virtually non-existent. The European country with the greatest coverage is Spain. In Brazil, we are close to 40-50% of the territory, and we are talking about a country of continental size in Brazil.
But, excuse me, the consumer opens their phone and sees 5G, sees that it says 5G, and says, “Well, I'm all set.”
But that's not the case. No, absolutely not. You can buy — even when I was younger, I could buy a Y. My father bought me the Y10, but I had the Fire version, and then there was the Y10 Turbo. It was still a Y10. Too bad that to have a series of services that are the ones that take us into the future, you need 5G Standalone. To make everyone understand, I'll try to simplify the concept. One day, we will all have autonomous driving cars. These autonomous cars are coordinated through, among other things, 5G coverage. When you give the car the command to brake, or there's a sensor in front that sees an obstacle and needs to stop the car, it can use the network. The delay in the command between 5G and 5G Standalone can result in a 3-meter difference. 3 meters means you could kill an elderly woman, two children, four ladies — some get hurt. But this is the same thing. When we imagine situations like this — this was a classic example done in Brazil of remote surgery. Latency is fundamental.
What is latency? Let's explain it to all the friends following us as well.
Do you remember when Sky was only via satellite?
When you changed the channel, it took 3 seconds to change the channel. Today, maybe you remember it because you had it via satellite, but today you change channels and it changes immediately. Before, it took time. Latency is the time required between sending a command and receiving a response. If you are doing trivial things, like changing a channel, it doesn't impact your life; maybe you get annoyed, but when we start in the current world with drones, autonomous cars, or a whole series of other services, there are fractions of a second that are imperceptible to us that make the difference between a disaster and something that continues as normal. That is the difference.
Yes, but for that stuff, you don't need 6G, because people are starting to talk about 6G. What is the difference between 5G, 5G Standalone, and 6G?
Well, 6G today is still a concept, but it is a concept in which it's, let's say, an evolution of 5G where everything will be connected. Already today, the move from 4G to 5G was because with 5G, you start connecting many things to the network simultaneously, not just people. It's a completely different world.
But for 6G, will we have to choose between the chicken and the egg again?
Yes, but today we have the problem that the choice between the egg and the chicken exists for the renewal of frequencies.
The frequencies must be renewed, and our operators' association is asking the government that this renewal of frequencies happens with the Brazilian model. Mind you, it is also the model that the European Community is suggesting today. The European Community, also due to national security concerns, is asking all states to renew frequencies for a very long period of time. In some cases, the European Community even suggests an indefinite renewal, because they want to avoid having any foreign company arrive one day. Let's take Starlink as an example: they buy the frequencies, connect to the satellite, and European countries become dependent on a third party for security. So, renewing the frequencies now has a double advantage. First, it secures things; but what we are proposing as operators is: don't make us pay a high price for the frequencies, make us pay a more moderate price plus our commitment to consider next-generation 5G. It seems to me that's a good...
Meaning a commitment that isn't simply an obligation, in short, to do certain things.
An obligation, correct, you're right. Let's define the obligation to avoid any misunderstanding. It is a promise and a signed obligation.
Listen, however, this issue is affected by the opinions of both the telecommunications authority and the antitrust authority, which deals with all competition matters. What are the two positions of each? What are the positions of each of these two authorities, and your position — yours and your company's — as well as that of the other companies, since you mentioned the group association?
Yes, let's distinguish, because the antitrust one is a non-binding opinion, let's clarify that. The European guideline is to renew the frequencies for a very long time at no cost or a low cost, so not to collect much right away. This community position is also linked to the fact that at the EU level, it has been realized that if we want to regain a minimum of technological independence in Europe, we need national champions that also invest in data centers and cybersecurity, and the only entities that can do that are telecommunications operators. But if telecommunications operators don't make money, they cannot reinvest. Agcom generally agrees on the renewal of the frequencies, perhaps with a low renewal value plus an obligation to provide coverage. Of course, we also have to wait for the point of view of the Italian government in terms of industrial and budget policy.
Has the Italian government expressed an opinion on this point so far, or not?
No, it hasn't expressed an opinion yet; there are discussions underway. Then, not at the government level, but in general, there are a whole series of more demagogic discussions by some social groups that have positions, I repeat, demagogic, such as: “No, operators must maximize the utility for the end customer.” Why do I define them as demagogic? Because we must realize that in the past you had two alternatives: the public sector and the private sector. In the public sector, you could decide to have activities that were perhaps running at a loss because it was a universal service for customers, so the State would take on a series of costs; in the past, telecommunications were also part of this.
Certainly, the current state budgets.
Reaching remote little towns with few inhabitants, etc. So, it becomes increasingly complex for European states to take on these services because they are already financing a series of primary services — healthcare above all, and defense. And we have chosen a free market. In a free market, in competition, companies only work if they make a profit. If I don't make a profit and I have a WACC — that is, the cost of the capital with which I finance myself — greater than the return on investment, you don't have to be a corporate finance expert to see it's a company, it's a sector that is technically dead. If you, as the financial world, have to lend money, do you lend it to me, who has a cost of capital higher than the return on investment, or to someone who has a return on investment higher than the cost of capital?
“Ça va sans dire,” as the French would say.
Anyway, that's fine by me, I'll go do another job. I'll work in tourism, which will certainly have a future in Italy, but our country won't have digital networks.
Look, but put like that, someone might say: “Oh, those poor things, should we take up a collection?” Why? So, try to explain what you mean by “not sufficiently,” an insufficient profit. Because how much investment would you need to make to, let's say, bring us to — I won't say the cutting edge, but at least to a good average position in Europe and competitive internationally?
Well, basically we are talking about an order of magnitude between one billion and one and a half billion in investments for each operator. Sorry, in broad terms.
Because it's not divided among all operators; it's per operator. Consider that today, TIM alone already invests 1.3 to 1.4 billion per year, but for many things like fixed, mobile, IT, and data centers, so it's a significant investment. But I repeat, the business model for the entire telecommunications sector needs to be rebuilt. If I may, Enrico, I'll give you a quick summary. In Italy, the first line item for you, and for all operators, the first item is the top line: revenues. We have the lowest prices in the world for mobile and the lowest in Europe for fixed services. So we have the lowest revenue item, and then we have high personnel costs because our Constitution — and I share the principle — protects employment. It applies to Italy, France, Spain, and Germany; let's remember, it does not apply to the UK or the United States. Then, the second cost item is energy. I spend 400 million euros a year. It is an energy cost that is much higher than in the rest of Europe.
And you are very energy-intensive as a sector, because with a lot...
Yes, but we aren't considered as such, which is absurd. When you start listing all these things, well, at a certain point the P&L doesn't add up, so we have to protect the consumer. Sure, but some of the constraints we have regarding costs are determined by the rules. Let me give you an example. One of our main cost items after personnel and energy is towers, and you could tell me that all operators in the world have towers. The pity is that we have to install more because the electromagnetic limits we have in Italy are 1/4 of European standards, which means I have to put up many more antennas. If I put up many more antennas, I spend much more. But what is the paradox? I've even read fanciful requests from some president — the president of an important Italian region said there is no coverage in my region, so I want to tax mobile phone operators and use that tax to fund coverage. Then, however, if that region is the one where the bureaucratic process for authorization is the longest (over a year), is the region that gives me the most rejections, is the region that doesn't allow me to use current electromagnetic limits that are only a quarter of the European Community's, it gives me the most rejections. So, we need to make peace with ourselves. If someone wants to talk, there is a need for antennas. Without antennas, the only way to communicate is with tin-can phones. I asked my colleagues in those areas to bring plastic cups and strings and join them together.
There's also the carrier pigeon, if you want.
There's also the carrier pigeon, but we must be consistent, because...
Listen, you're making me curious to know which region this is.
The president of the Tuscany region made a statement. I mean, I repeat, I am more than available, just as we can absolutely reduce the number of antennas; to reduce the number of antennas, I and another operator can put the equipment together and use the frequencies. This means putting up fewer antennas. But if the antitrust authority doesn't want it, I'll have you all sit around the table: the end customer who wants to communicate without antennas, and you and me, who are old-timers as they used to say — we have to remember Uri Geller, the one who had telepathy that allowed you to communicate.
Sure, sure, sure. And then there's the Antitrust that tells me one thing, the Mimit that tells me another, AGCOM that tells me yet another, and then we are just suffering from an accumulation of bad luck.
Well, listen, but let's say — if you had to point to a virtuous path, what would you suggest doing at the stage we've reached? Because sometimes you also have to skip a technological cycle, right? It has happened other times, perhaps not in telecommunications, that you fell behind and at that point you make a leap — for example, sticking to telecommunications, African countries didn't have landlines, but at a certain point they moved straight to mobile. So, is there a leap we could make that would be worth the effort?
Well, for example, in Brazil we were behind with 3G coverage and we made the leap by going directly to 4G.
That's your own example in this specific case.
However, since 6G isn't a defined standard yet, it will probably arrive in '32 or '33, then I'd have to standardize the equipment, and especially with the fact that technological evolution now has such a speed that 7G might arrive first.
We cannot afford not to have standalone 5G in Europe and in Italy. Let's call it turbo, since it's easier — 5G Turbo.
5G Turbo. I accept the suggestion.
