FastWeb Adds 60K Broadband Subscribers in 2Q08

FastWeb, the competitive carrier in Italy, added 60 thousand broadband subscribers in 2Q08 (135 thousand in 1H08) giving it a total of 1.398 million subscribers. It had no comments on the number of IPTV subscribers that it serves.

The company plans to offer a 100 Mbps fiber offer to small and medium enterprises in 4Q08 at a premium price, and will extend this to the SOHO and residential market after the end of this year. This is an upgrade from its current 10 Mbps service. It expects this higher speed service to lower churn and stabilize ARPUs.

FastWeb stated that its fiber service passes 2 million homes in Milan, Turin, Genoa, Bologna, Roma, Naples, and Bari. It stated that this is higher coverage than any other European country. Fastweb's 243 thousand fiber subscribers is nearly 25 percent of all of the fiber subscribers in Europe.

FastWeb will introduce mobile services in Italy in September 2008. It will focus selling the service to its current customers in October and launch it to the business market in 4Q08. It is currently evaluating a mobile offering to its executive customer base.

As usual I interpret the lack of an announcement of IPTV subscribers to indicate that there was no significant increase during the quarter.

FastWeb and Telecom Italia to Cooperate on Fiber

Telecom Italia have signed a memorandum of understanding (MOU) to share fiber infrastructure in Italy and to cooperate as follows:

• Joint planning of the civil infrastructure for fiber networks
• The reciprocal exchange of rights to use civil infrastructure
• Joint study and testing of new techniques in civil infrastructure such as latest generation micro-tubing for laying fiber

As part of this MOU the two companies settled a number legal and regulatory issues between the two companies, including:

• Fastweb's claim against Telecom Italia's alleged unfair practices in the business customer segment
• Disputes relating to Fastweb's fixed line tariffs and to those applied by Telecom Italia on the mobile network
• Telecom Italia's contesting Fastweb's adjudication of the tender to supply telephone services to public governments in Italy
• Reconciliation of a number of account items under dispute between the two companies

This agreement shows a path forward that may be followed in other companies with strong telecom competitors. FTTH is a very expensive proposition and both incumbents and competitors will be well served by cooperating in the deployment of fiber infrastructure.

Fastweb adds 31.4K IPTV Subscribers in 1Q08

Fastweb added 31.4 thousand IPTV subscribers in 1Q08, which is an increase of 77 percent over the 17.7 thousand IPTV subscribers that it added in 1Q07. It did not announce its total number of IPTV subscribers.

Fastweb credits its increased sales in 4Q07 and 1Q08 to its introduction of a TV only service that does not require a broadband data or VoIP service. It has found that the churn rate of its IPTV subscribers is 24 percent lower than its overall customer base.

Fastweb seems to have breathed new life into its IPTV service with its single play IPTV service.

Fastweb adds 100K IPTV Subscribers in 2007

Fastweb announced that its Gross Sales of its IPTV were 99.9 thousand new subscribers, which is a 10 percent increase over the 91 thousand new subscribers that it added in 2006. It added 43.7 thousand of these new subscribers in 4Q07, which is 73 percent up from 4Q06.

Fastweb credits the increase in IPTV sales in 4Q07 to the introduction of a TV only option in September 2006. The company stated that the churn rate of its IPTV service is 4 percent lower than its overall customer base. It also stated that its IPTV service provides upsell opportunities and helps to stabilize ARPU and improves customer retention.

I have asked Fastweb to clarify these numbers. In particular, I have request its total number of IPTV subscribers. It appears that my own estimates are fairly far off the mark right now. I will post any additional information that it sends me.

FastWeb to Offer Disney Content On Demand

FastWeb in Italy will start offering Disney content on demand targeting teens, tweens and preschoolers. The Disney Channel On Demand offer will include live action series such as Hannah Montana, the sitcom Quelli dell’intervallo, animated programs such as Kim Possible and American Dragon, and Disney Channel Original Movies such as High School Musical 2 in its Dance Along version. For younger viewers, Disney Channel On Demand will offer a range of series for preschoolers, such as the newly launched Disney My Friends Tigger and Pooh, Mickey Mouse Clubhouse, and Handy Manny.

FastWeb is a real IPTV pioneer on a global basis. This is a good addition to its on demand service. Children's programming is a popular segment of an on demand service.

Swisscom struggling to add 20K IPTV Subscribers

Swisscom added again added 20 thousand new subscribers in 3Q07 giving it a total of 60 thousand subscriptions installed and on order. While its Bluewin TV IPTV subscribers are satisfied with the service's content, features, and usability, there is significant dissatisfaction due to technical issues.

Swisscom stated that it has already made major improvements that have resulted in:

• Cut the relative call volume in half over the last six months.
• Reduced order fulfillment time by one third

Swisscom has put its priority on achieving stability, which has kept the costs of the service high. It plans to improve the stability and quality of its IPTV system including connectivity, encoders, and its IPTV software system. It plans to install new encoders that will improve audio and video quality in 1Q08.

Swisscomm expects to reduce the costs to install its Bluewin TV service to about $650 per subscriber over the next year through a self install program that will include:

• Line prequalification and self install
• A lower price for a self install
• A cheaper set-top box
• Reduction of call volumes and efficiency improvements

It will be tough for Swiscom to achieve its goal of 100 thousand IPTV subscribers by the end of the year. It would have to double its rate and sign up 40 thousand more subscribers during the fourth quarter.

I wondered if Swisscom would tap into FastWeb's IPTV expertise at the time of the acquisition. It appears that Swisscom could really use the help to stabilize its service.

FastWeb Reemphasizing IPTV

FastWeb, the Swisscom competitive telecom subsidiary in Italy, put renewed emphasis on its IPTV offering in its 3Q07 presentation. In September it reduced from 15 to 6 residential offerings. These packages bring its pricing in line with or below Telecom Italia. With this new offering, 88 percent of its new subscribers added in 3Q07 were signed in September. It stated that October is continuing strongly.

FastWeb believes that their are clear opportunities for IPTV in Italy because there is no cable there and limited satellite and digital terrestrial penetration. The company expects that IPTV will become the single most important differentiating factor in the fixed market.

FastWeb points to its seven years experience offering IPTV services as a significant advantage. It believes that has the best prices in Italy. It found that the take up of IPTV increased in September to 25 percent vs. 20 percent average in the previous 12 months.

FastWeb added 56 thousand broadband subscribers in 3Q07, giving it a total of 1.251 million. It stated that 82 percent of these were residential subscribers. It stated that it experienced significant pressure from a Telecom Italia win back campaign.

I estimate that it added 10 thousand IPTV subscribers in 3Q07. This rate should increase significantly based on the emphasis that it is now putting on IPTV.

This is a significant change for FastWeb. It has been emphasizing its enterprise business in its presentations for the last couple of years. It had just completed a national fiber network that enabled it to compete in the enterprise market.

It looks like Telecom Italia has become very competitive on the broadband market and caused FastWeb to go back and put new focus on the market that established it in the first place.

25,000 FastWeb Subscribers Take Sky

FastWeb reported its second quarter earnings. It is now 82 percent owned by Swisscom. It has significantly decreased the level of detail in its reporting. It now reports that it had 1.2 million total subscribers and the end of 2Q07, an increase 45 thousand. It stated that 82 percent of these total subscribers are residential subscribers. The company made no statement about the number of IPTV subscribers.

During the quarter FastWeb completed executing its agreement with Sky that allows Sky to offer FastWeb broadband services and FastWeb to offer Sky satellite TV services over its broadband network. It stated that more than 25 thousand of its subscribers have subscribed to the SKY service. I think that this is about 10 percent of its IPTV subscribers.

The company also discussed its triple play self install gateway. This gateway supports MIMO WiFi, SIP based VoIP, connection to the home phone wiring, and a WiFi enabled set-top box.

The company also stated that it is developing a home multimedia that will permit access of TV content from the PC. This system is based on the UPnP.

I believe that FastWeb's IPTV service is lagging its overall broadband service in growth. The company's strategy has been to maintain a higher price for the TV service to make it profitable in itself rather than to use it to promote its broadband service.

Swisscomm FastWeb Tender Succeeds

Swisscom's tender offer for FastWeb stock was successful with an acceptance level of 80.7 percent. This will give Swisscom ownership of 82.4 percent ownership of Fastweb stock when its own 1.7 percent of FastWeb shares is added in. The settlement of the tender offer will take place on May 22, 2007.

Swisscom will start to work with Fastweb to develop business plans and explore forms of cooperation in more detail. Fastweb's operations will continue to be managed separately. Swisscom will retain the Fastweb brand in Italy.

This arrangement should benefit both companies. FastWeb should be able to help Swisscom with its own IPTV offering.

FastWeb adds 20,000 IPTV Subscribers

FastWeb added 20 thousand IPTV subscribers during the first quarter of 2007 for its new offering of the Sky Italia content over its IPTV service. This service became available to only existing FastWeb customers at the beginning of March 2007. This service became available to new FastWeb customers at the beginning of April 2007.

Based on this news we estimate that FastWeb new has 225 thousand IPTV subscribers. The impending combination of FastWeb and Swisscom should make the combination the number three TelcoTV service in Europe after Free and France Telecom and before Neuf Cegetel and Belgacom.

Swisscom at 40,000 IPTV Subscribers

Swisscom announced that 40 thousand people had signed up for its IPTV service that was launched in November 2006. There are more than 25 thousand with the service installed today.

The tender for FastWeb stock is open through May 15. We should hear as early as May 16 whether or not it will be successful. Silvio Scaglia, the founder of FastWeb, has tendered his shares. Swisscom will consider the tender successful if it receives at least 50 percent of the shares but will likely proceed if around 49 percent of the shares are tendered.

Swisscom is doing well with its new IPTV service and seems to be on track to have at least 100 thousand IPTV subscribers by the end of the year.

It will be interesting to see how it changes its IPTV strategy after the FastWeb acquisition is complete. I think there is a good likelihood that it will abandon its Microsoft software and replace it with the FastWeb system. The company could easily integrate both service together.

FastWeb to Pay 300M Euro Dividend

FastWeb's board of directors approved on Friday March 23 a total dividend payment of 300 million euros to its stock holders in the face of a consolidated net loss of 123.6 million euros for 2006. FastWeb has the cash for the dividend because it spent less on its network expansion than was originally budgeted.

This dividend will be 3.77 euros per share and will take place on October 25, 200. More than 50 million euros of this dividend will go to Silvio Scaglia, FastWeb's founder and largest share holder.

This dividend is being made because FastWeb could not find a buyer during a search in 2005. It gives Scaglia a way of pulling a significant amount of cash from his FastWeb holdings. Other than to satisfy Scaglia, it was never clear why this was a good idea for FastWeb.

Of course, the Swisscom will make this moot. Scaglia should wind up with more than 500 million euros of cash from that deal when it closes.

Swisscom Chasing fast Web

Swisscom plans a tender an all cash offer of 47 euros per share for 100 percent of the shares of FastWeb, the IPTV pioneer and leading competitive carrier in Italy. The total cost to Swisscom will be 3.7 billion euros. Silvio Scaglia, the founder and leading stockholder in FastWeb has accepted Swisscom's proposal. This Swisscom deail will allow Scaglia to fully liquidate his investment in FastWeb, something he has wanted to do for more than a year now. FastWeb's board of directors will consider Swisscom's offer today.

Swisscom stated that it intends to make long term investments in FastWeb based on a new generation of network and innovative offerings in Italy. Swisscom stated that the acquisition would strengthen it in three ways:

• FastWeb has a lead of 3 to 5 years in new technologies that will strengthen Swisscom's infrastructure.
• FastWeb has a competitive edge in multimedia applications including IPTV.
• FastWeb will boosst Swisscom's cash flows significantly since it is a high growth company with increasing cash flows over time.

This acquisition solves a strategic problem for FastWeb. Silvio Scaglia has wanted to bail for more than a year and forced the payment of a 300 million euro one time dividend to liquidate a part of his investment in FastWeb. It also gives Swisscom a very strong entry into the Italian market and access to the latest technologies. It will be a good deal for both companies as long as Swisscom can maintain FastWeb's business and technical expertise.

FastWeb Merger Pending?

FastWeb has suspended trading on its shares Monday, March 12. It held a board meeting on Friday, March 9 to consider its strategic options.

FastWeb has been looking for an opportunity to merge for over a year now. Tomorrow we may find out what is going to happen.

FastWeb Shifting Gears

FastWeb reported its 2006 earnings yesterday. Its presentation reflected its transformation from a consumer oriented company to an enterprise oriented company that has been enabled by the completion of its network expansion. The details of its fourth quarter 2006 results are available at http://company.fastweb.it/index.php?sid=53.

FastWeb added 105 thousand subscribers in the fourth quarter of 2006, giving it a total of 1.062 million. Its ARPU per residential customer was €797 per year, which is about €100 less than 2005. The ARPU from video subscribers was €296 per year in the fourth quarter, which is about €20 less than 2005. The decreases are generally the result of the introduction of lower cost offerings.

FastWeb stated that the number of broadband connections in Italy grew from 6.8 million to 8.4 million in 2006. FastWeb's share grew from 11 to 13 percent and the share of the other competitive providers grew from 5 to 7 percent. Telecom Italia's share shrunk to 67 from 71 percent.

FastWeb will implement its agreement with Sky in Italy in April that will permit FastWeb to offer all of the Sky TV channels over its broadband network. It will also permit Sky to offer FastWeb broadband services. The FastWeb and Sky services will be billed separately. FastWeb will provide an integrated decoder that supports both FastWeb and Sky video content.

In the second half of 2007, Fastweb will offer a new self installed home networking capapbility for both the residential and the SOHO markets. It will use Ruckus Wireless MIMO WiFi technology that has been optimized for video traffic.

FastWeb is also working on a mobile component so that it can expand its triple play strategy to a quadruple play strategy. Its MVNO agreement with Vodafone is on hold while Vodafone waits for rulings on local number portability. FastWeb has declared that it will take an alternative path if the Vodafone deal falls through that could include acquisition or the deployment of its own mobile network.

FastWeb is also seriously considering deploying WiMAX to extend its reach to 90 percent of the market. It has successfully completed trials expects to launch using wholesale services depending on resolution of spectrum issues in 2007. It also plans to deploy WiMAX into areas without broadband coverage today in 2008 and 2009.

While FastWeb is putting strong emphasis on its new enterprise offerings, it remains quite serious about the residential market. It expects 45 percent of its revenue to come from this market in the long term.

Its IPTV strategy is based on offering a profitable as opposed to a market entry service. It is keeping its prices up and formed an alliance with Sky to support this strategy. Its primary competition is a strong free to air digital terrestrial service today.

We expect that FastWeb's strategy will continue to produce strong results. Telecom Italia is clearly a strong competitor that plans to deploy VDSL. As long as FastWeb can get competitive wholesale access to this new VDSL service from Telecom Italia, it should do well.