NEW YORK-“We are our own unit, and we do not think our way of running the business will be affected by the merger,” Massimo Arciulo, director of strategic and financial analysis for Telecom Italia Mobile, said last week of his company’s merger plans.
Germany’s Deutsche Telekom AG and Telecom Italia SpA, which owns 60.1 percent of Telecom Italia Mobile, agreed last month to an $82 billion merger that will be one of the largest in history if it goes through.
With 15 million customers in Italy, TIM is the largest wireless carrier in Europe. It also has about 4 million additional European customers as a result of investments in carriers in countries including Austria, the Czech Republic, France, Greece and Spain. However, Germany and Switzerland are situated between its Western and Eastern European service territories.
“As you can see, Germany looks like a hole, but it looks like we will fill it soon. If we want to be a pan-European operator, we need to fill in this backbone, at least in the network. If we can exploit a marketing presence also, so much the better,” Arciulo said at the New York Society of Security Analysts “Euroland Finance Forum 1999.”
“With or without the merger, we have been thinking about how to penetrate the German market. One of the key elements of this merger could be to allow us to export our business model to Germany,” Arciulo said.
TIM’s business strategy includes high tariffs, no subsidies, low customer-acquisition costs and a significant reliance on prepaid services. Prepaid customers, whose monthly average revenue is about $30 each, account for 78 percent of the carrier’s base, said Valeria Leone, director of administration and control business planning.
“Our main asset is our large customer base, which makes possible huge economies of scale and allows us to lead innovation,” Arciulo said.
“Prepaid allows us to achieve high levels of penetration and [cash flow] margins, a profitability indicator, which were 48 percent in 1998.”
However, Telecom Italia Mobile has bucked the trend toward using prepaid services as a way to reduce the number of customer service representatives. About 45 percent of its approximately 9,000 employees work on customer care. This staffing pattern is the result of a calculated effort by TIM, which considers itself “a factory of minutes,” to educate its customers about different and more ways to use their handsets and its network, Arciulo said.
“The industrial plan made by Telecom Italia chartered us to deal with the mass market, and not just in mobile telecommunications … Our mission is to go after convergence in networks and clients,” he said.
To execute that strategy, Telecom Italia Mobile introduced in November a program called “Passa Parola,” or “pass the word,” that allows incoming callers to find TIM customers automatically at either their wireless or wireline phone numbers.
More recently, it introduced a wireless-wireline version of the “friends and family” program, which offers discounted charges for landline long-distance calls among certain frequently called numbers. TIM’s offering allows three mobile numbers and one or two wireline numbers to participate.
Within the next few months, Arciulo said the carrier plans to announce a bundled bucket-of-minutes plan that customers can use for both wireless and wireline calls.
Because of its mass-market focus, Telecom Italia Mobile has not yet seen the need to provide wireless data, which so far has been a service demanded by business customers.
“As to data for the mass market, up to now it hasn’t had the market size,” Arciulo said.
“It is up to us to understand the opportunity because the future will be affected by data needs. As a customer retention tool, we will teach our customers the value of data and how to use data communications.”
Besides its status as the largest wireless services provider in Europe, Telecom Italia Mobile also has about 7 million customers from its investments in carriers outside Italy. Of these subscribers, about 4 million are in other European countries and nearly 3 million are in South America, including Argentina, Chile, Bolivia and Brazil.
“Our key objective for the future is to create a network of subsidiaries in South America that use the TIM brand,” Arciulo said.
“We have invested in several countries, in several companies that are in the start-up phase, and now it is time to get some money back from them.”
Telecom Italia Mobile also has a small toehold of less than 200,000 subscribers in Asia.
“The Asian market is a very good one, but we can’t be everywhere at once,” Arciulo said.
“We haven’t decided to go away from Asia, but for the moment we want to exploit economies of scale.”
