The paradoxes and the challanges of the telecommunications industry in italy

The telecommunications industry in italy is made of paradoxes: on the whole it is growing, but some of its sectors are failing; it kicked off the technological revolution, but has been brought to its knees by digital technology. Yet it is precisely from these paradoxes that the industry can continue to grow.

In a previous post, we talked about the current situation for the telecommunications sector in both Italy and Europe which shows that the sector is constantly divided between difficulties and opportunities. It is interesting to note that the more you study the Telco situation, especially in Italy, the more you realize that there are many paradoxes and they are recurring. At the same time, however, they represent an interesting point of view from which to study the sector.

In a certain sense, they offer the opportunity to reflect on what could be some effective interventions to face the problems of the sector and turn them into opportunities for development and growth. This kind of reflection is especially important if we consider that the TLC segment is one of the most strategic ones for Italy, in terms of market competition.

In light of all this, it may be useful to identify these paradoxes, which are the real challenges that operators will have to face in the future and to combine each with a possible positive approach, while knowing that there are no infallible recipes for emerging from a crisis. Rather, there are attitudes that can help turn each of these challenges into an opportunity.

 

A sector that doesn’t grows equally – the telecommunications industry in italy

The 2020 Assintel report gives us a good view of the national and international situation. What emerges is that, in the telecommunications industry in italy, the approach of Italian companies to digital innovation has changed compared to the past. Previously, Italian companies generally had a “wait-and-see” attitude towards new technologies, introducing them into their businesses only when they had reached a certain level of maturity.

Today, the market increasingly requires rapid execution and faster time to market. For this reason, the level of penetration of new technologies in Italian companies is slightly lower than in countries like Germany, England, and North America that are more traditionally open to technical innovation. Add to this the fact that digital innovation is no longer limited to large industrial groups; on the contrary, digital transformation has allowed democratization of technology.

It turns out that even small- and medium-sized Italian companies are able to integrate innovative technologies that have a positive impact on production. Because of these two trends, in 2019, the IT sector grew by 2.3%, where Italian companies exceeded €31 billion; by 2022, the sector is expected to exceed €32.4 billion of corporate IT investments. In addition, in 2019 the IT sector also recorded a total expenditure of over €24.2 billion, up 3.8% compared to the previous year, thanks mainly to the software component.

In this case, the paradox lies in the fact that, in the face of these positive trends, another one is associated with contrary dynamics. If we look at the data related to Telecommunications Services, we can see a drop in company spending to just under €7 billion, a -2.7% reduction compared to 2018.

How to overcome this “paradox”? It is clear that traditional telecommunication services are declining, and this trend will continue in the coming years. Therefore, this is the right time for companies in the sector to change and rethink the structure of their business, investing seriously and consistently in their digital transformation. In order to demonstrate competitive advantage, competitors will have to shift their focus towards more innovative services with the highest added value.
 

An innovative sector cornered by innovation

The second paradox that emerges from the analysis of the sector is that, while having all the requirements that drive the digital transformation of other industries, here, this sector seems to have suffered.

Digital innovation, in fact, has opened the way for new players who have managed to exploit new technologies to offer agile, innovative, and above all, free services. After all, it is natural if we consider that the suppliers’ business model is focused on the level of adoption and not on the level of revenue.

This type of provider has challenged Telcos, who have not been able to respond effectively to their deployment; it’s also because the former has managed to exploit the existing infrastructure to their advantage, operating “over networks” and relying on so-called content delivery networks. So, digitization has paradoxically favored Telco competitors rather than Telco itself.

How to resolve this situation? In this case, the “solution” is contained in the problem itself.

Some experts in the field see OTTs themselves as the key to solving the situation, provided that they are transformed into “frenemies“, or rather “allies”. It has already happened in other areas that larger companies, put in crisis by the rapid evolution of the market, have chosen the path of acquisition to face the technological changes that threaten their very survival. Think, for example, of what happened in the financial sector. As a result of the digital revolution, a number of small, highly competitive and digitally advanced companies have emerged. Those companies, which provide convenient and agile services, have begun to gain increasing market share. Under threat from these unexpected competitors, the larger companies realized that rather than fighting them in an impossible race, it was better to make them their allies.

What are the advantages of such a strategy? First of all, such a move makes it possible to eliminate an insidious competitor without having to enter the competitive arena. Secondly, it allows the know-how of the acquired company to be absorbed. This is a key advantage, especially considering the fact that digital transformation has required some specific skills that are difficult and costly to develop. In this way, the acquisition phase of such knowledge is accelerated, gaining a significant competitive advantage over other companies.

 

Lack of skills, not investment

The third paradox of the telecommunications industry in italy is also shared by other sectors, which makes it a particularly urgent problem to be resolved for the good of the Italian system.

As mentioned above, TLC revenues are still falling, mainly due to the downturn in the mobile sector. Despite this, investments in infrastructure have reached excellent levels, which gives hope for a recovery, even gradual, in the market.

This would therefore be the time to innovate, reinvent, and support the sector, but we lack the human resources to do so. It turns out that Italian students are no longer studying telecommunications. This has been the result of a message, perhaps unintentional, namely that the telecommunications sector is no longer an attractive (or financially lucrative) market for building a career. As a result, the number of students in this field has gradually decreased, while, on the other hand, the degree courses in telecommunications engineering have disappeared from many universities, ending up absorbed by other degree courses or becoming a simple specialized course.

This situation means that, in a market that offers various possibilities for growth, there is a lack of technicians and professionals ready to meet the demand of companies.

The solution? Easier said than done. First of all, we need to attract investment into university and research, as was done recently in the case of Huawei. Collaboration between universities and companies would not only ensure an acceleration of technological evolution, allowing the development of useful skills, it would also help the spread of a certain culture of innovation in companies, making them more inclined to seek out and invest in new professionals. This would allow students to approach the subject by discovering career paths that perhaps they had not even considered before.

Secondly, we need to put a brake on the downward price race, which not only makes the whole sector less attractive, eroding its revenues, but also prevents companies from being able to hire and grow highly specialized staff. This is especially true for small- and medium-sized companies, which should be one of the main outlets for recent graduates entering the workforce.

 

There is no real innovation without good legislation

The fourth paradox of the telecommunications industry in italy, in fact, calls into question not only the economic players in this sector, but also the institutional players. As mentioned at the beginning, telecommunications are a key area for each country. An example, in this sense, is 5G, the super-fast integrated network that several countries are developing to support the growing demand for fast and stable connectivity.

It represents a considerable opportunity for all companies to benefit from cutting-edge infrastructures, capable of supporting development that digital transformation is increasingly pushing towards a connected and integrated market.

Where’s the paradox? The fact is, the institutions seem to be unable to adequately understand these changes and build a regulatory system able to withstand such an impact that anticipates the possible risks brought by this technology.

As a recent Corriere della Sera article revealed, many EU member countries are blocking or slowing down the adoption of this type of network due to security problems, or because they are waiting to carry out investigations, or because they want to create a regulatory framework able to safeguard both national and industrial interests. Italy, on the other hand, is proceeding to enter into agreements that entrust its most strategic networks to suppliers whose reliability has been repeatedly questioned even by Copasir, without providing for regulatory devices able to make the situation both clear and safe.

This increases uncertainty for both investors and consumers, to the considerable disadvantage of the whole market.  The solution, in this sense, is obvious. What is needed is intervention by national institutions, obviously within the framework of what has already been established at European level, in order to ensure fairness and transparency in bargaining. In addition, the intervention would also serve to move ahead of other critical issues that will arise in the future, some of which are related to 5G.

With the arrival of this new technology, many people are wondering what will happen to net neutrality, if they will be compatible or, if on the contrary, it will be necessary to modify related regulations to allow the implementation of these networks. Although the problem seems far from materializing, the issue is still to be addressed and this is just one example of the kind of issues that must inevitably be dealt with by Italian institutions.

In conclusion, the sector has many contradictions. In its own way, it is a giant that is awakening after a long period of immobility, but one that still must find its footing. Just as we can emerge stronger from crises, weaknesses can also be transformed into strengths, provided that you want to challenge yourself, invest in innovation and in training human resources to match, to capture trends, and to make strategically conscious choices.

This all depends on whether the external conditions are in place to consolidate this recovery. Only in this way will telecommunications industry in italy once again becomes a sector capable of leading the digital evolution and guiding the country’s economic, social, and technological development.