All change for the telecoms old guard

Olivetti's audacious bid for Telecom Italia has thrown the former state-owned telco into a frenzy of cost-cutting action. But, says Julian Goldsmith, the upheavals facing incumbent European telcos can only spell good news for end users.

Olivetti's audacious bid for Telecom Italia has thrown the former state-owned telco into a frenzy of cost-cutting action. But, says Julian Goldsmith, the upheavals facing incumbent European telcos can only spell good news for end users.

There is a storm brewing in European telecoms. The first rumbles can now be heard in Italy, as Telecom Italia fights off a hostile takeover bid from Olivetti, but commentators think it will spread to every incumbent telco on the continent. This will inevitably mean confusion for businesses, as customers are shifted from supplier to supplier. But fear not - the long term is likely to see cheaper and more varied services. Telecom Italia has been in trouble for several months, during which it went through a series of executive shakedowns which left it rudderless. Olivetti, with backing from German giant, Mannesman, moved in and launched a takeover bid for the telco - a deal which was valued at $58bn on 20 February. Telecom Italia saw the bid as hostile and fought it on regulatory grounds. On 1 March, however, the Italian stock market regulator, Consob, approved the offer and Telecom Italia was forced to resort to drastic measures to throw Olivetti off the trail. On 12 March, the company announced a radical reorganisation in order to inflate its value and put it out of Olivetti's reach. This included bringing its mobile phone interests closer to the core of the business, selling off its non-telecoms arms and cutting costs by L1,000bn (E500m). It also hinted at rationalisations, calling for the workforce to pull together for the greater good of the company. On 15 March, the Financial Times reported that the company had plans to cut its oversized and heavily-unionised workforce by a third. It said that up to 40,000 jobs were at stake, half of those within the core telecoms areas. A spokeswoman for Telecom Italia denied any figures have been determined, but confirmed the company is in the process of negotiating with Italian unions with the intention of streamlining its workforce. "We are trying to avoid any drastic measures," she said. Try as hard as they might, the chances are we'll see some serious fallout. Telecom Italia has become vulnerable, along with all the other former monopolies now coming to terms with a competitive market. Industry analysts believe we'll see more of the same. David Brown, chairman of telecoms research consultancy, Schema says: "Telecom Italia's strategy has not come as much of a surprise. It is really a model for what all European incumbents will eventually have to do. They are going to be continuously under attack, and there will be considerable consolidation throughout European telecoms." IDC research analyst for European telecommunications, Tim Sheedy, agrees, noting that US operators are eager to get into the European marketplace. "There are bound to be more hostile takeovers in the long run, especially when the big US players get their global visions in place," he said. Sheedy also accepts the wisdom of Telecom Italia bringing its mobile operations back into its core business. "All the European incumbents are looking to integrate fixed and mobile solutions at any level they are allowed by the regulators. And this is going to make services cheaper to buy and easier to manage internally for business customers. For instance, it could mean one number for fixed and mobile phones across large regions of Europe." So Telecom Italia has been forced into a reshuffle by the predatory behaviour of Olivetti. It will not be the last defensive action of its kind, as other vulnerable players in the market wake up to the realities of competition. Olivetti - itself subject to takeover rumours not so long ago - could end up with a new jewel in its crown. What is clear, however, is that the outcome of all this repositioning will be good news for end users.