By Valentina Za and Elvira Pollina
MILAN, July 10 (Reuters) – Italy has picked an unlikely champion to develop its technology infrastructure and protect digital sovereignty: its national postman.
Poste Italiane, the postal service which pays out pensions through 12,600 post offices that are as much a feature of remote towns as the local church, is betting on its €13.5 billion ($15.4 billion) bid for Telecom Italia (TIM) to accelerate its shift into digital, telecom and cloud services.
Two-thirds owned by the state, Poste started its digital transformation in the early 2000s, venturing into electronic payments. Over the past decade it has signed up 30 million users – around 70% of the total – to Italy’s digital ID system to access public services online.
Serving 46 million customers across banking, insurance, telecommunications and energy, Poste also uses its branches, Italy’s biggest retail network, to give access to public services such as passport applications to the less digitally savvy.
The proposed deal with TIM fits into a broader sovereign cloud push in Europe, with domestic telecom and tech firms in Germany and France building cloud and AI infrastructure to serve strategic sectors such as defence and healthcare as well as other parts of the public administration.
BUILDING UP TECH CAPACITY
Poste argues the tie-up will create a larger state-backed group that can build distributed computing infrastructure across the country, a person briefed on the plans for TIM said.
Even without the investment firepower and the scale of U.S. tech giants such as Amazon, Google or Microsoft, Poste says the new entity could become a supplier for these companies, the person added.
Big tech companies buy infrastructure services ranging from fibre networks to data-centre capacity from telecom operators, as well as local network access points close to end users.
With 125 megawatts of installed data centre capacity, TIM is a top three national operator. However, Italy has only around 15% of Germany’s installed capacity.
Alongside TIM’s existing data centres, Poste-TIM could boost computing capacity at broadly distributed telecom hubs and convert former postal sorting centres into local edge-computing hubs, bringing processing power closer to users, Poste argued, according to the person.
In the future, TIM’s mobile network sites could also come into play, the person added.
Poste and TIM both declined to comment.
“As demand for data centres grows, the industry is increasingly looking at networks of smaller facilities located closer to users rather than just large, centralised sites,” said Antonio Capone, dean of the School of Industrial and Information Engineering at Milan’s Politecnico University.
With assets spread across the country, telecom operators are well placed to develop such facilities, Capone added.
“This is an emerging trend in the industry, and Poste is right to focus on it. Managing a distributed network is operationally more complex — think of maintenance, cooling or power management — but it is a challenge that makes strategic sense to embrace,” he said.
Europe lags behind the United States in AI investment and infrastructure and Italy is further hobbled by much higher energy costs than France or Spain.
TIM’S TOUGH JOURNEY
An ill-fated privatisation three decades ago saddled TIM with debt and it has since faced cut‑throat price competition that hammered profits and curtailed its ability to spend to upgrade its infrastructure.
Despite halving its debt to core profit ratio and almost doubling its revenue per employee with the 2024 sale of its fixed line network to U.S. fund KKR, TIM would struggle to sustain prospective 5G and cloud investments.
Italy has made progress on basic 5G technology, but AI-powered services require advanced 5G networks. In the U.S. these account for a fifth of total mobile connections but Spain is the only European country where the figure is above 5%.
“Building a 5G network is extremely capital intensive and you need scale to make it viable: you cannot sustain four mobile network operators in a market like Italy,” a leading TIM investor said, adding the investment case hinged on expected industry consolidation.
TIM competes with Vodafone-Fastweb, WindTre and Iliad. WindTre, owned by Hong Kong conglomerate CK Hutchison, and France’s Iliad started exploring a tie-up, Reuters reported last year but no deal has so far materialised.
Poste already owns 20% of TIM. A full takeover will allow Italy to reap the benefits of higher profits at the former phone monopoly were the number of operators to fall to three through long-mooted consolidation.
Requesting anonymity and declining to say whether they would take up the offer, the investor noted that a rise in Poste’s share price since the announcement suggested the market thought benefits from the deal may exceed the targeted €700 million.
As a state‑backed operator the new entity could handle sensitive communications, including in defence, the investor added, pointing also to Poste’s “low‑leverage business with strong cash generation from payments, insurance and financial services.”
Poste has said the tie-up would support TIM’s efforts to expand beyond its traditional consumer telecom business, which has been shrinking for more than a decade, into higher margin services for corporate clients, including cloud and cybersecurity.
“From a commercial standpoint the combination has a strong rationale: an even wider bundle of services could be offered to an even larger client base. That increases switching costs and helps customer retention,” consultancy AlixPartners partner Claudio Baretti said.($1 = 0.8763 euros)
(Reporting by Valentina Za and Elvira PollinaEditing by Keith Weir)
Comments