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The March 17, 2003 Issue Provided by System Dynamics Inc.
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Fastweb's Success: Innovation Plus Results

FastWeb promotion in Genoa May 2001. --> Click for larger pictureAfter visiting with FastWeb in Milan in June 2001, we wrote about their rollout of a pure-IP fiber-to-the-home service throughout Milan. We concluded that FastWeb and its parent company eBiscom were leading the way into the future of converged services and called them "a world leader in creating a comprehensive and durable model for the broadband future."

While many companies with great ideas and plans don't look as good a year or two later, this is clearly not the case with eBiscom. After reading their press release on 2002 results, we scheduled a follow-up interview to explore their progress. We were delighted to speak with Mario Mella, Network Planning Director for FastWeb and Jason Jacobs, International Media Director for eBiscom.

What we learned was not surprising after our visit, but was a pleasant change from the many depressing telecom stories we've read:

  • FastWeb has continued to implement their business plan and is achieving impressive results.
  • They continue to introduce new services at the same time as surpassing their financial targets.
  • The incumbent is trying to compete on the basis of "me too" but has the disadvantages of less-capable infrastructure and greater bureaucracy.

Let's look at the facts behind these conclusions.


Impressive Results

FastWeb beat all its consolidated targets for 2002 in terms of subscribers, revenues, and EBITDA.

  • It tripled its subscriber base, ending with 176,100 customers.
  • It tripled its revenues, generating 221 Million Euro.
  • After less than 3 years of operation, it posted its first positive FY EBITDA of 9 million Euro.
  • The average revenue per user (ARPU) for residential subscribers rose to over 780 Euro annually for December 2002, compared with year-earlier 690 Euro.
  • The average video-on-demand revenue per home more than doubled to 10.5 Euro.

FastWeb now operates in six major metropolitan areas (Milan, Rome, Turin, Genoa, Bologna and Naples) and offers services to both business and residential customers. Residential services represented 28% of services revenue in 2002. While all-fiber transport is the objective, they also offer service over ADSL as a tactical measure to capture the customer prior to rolling out fiber.


Services

FastWeb "triple play" promotion --> Click for larger pictureFastWeb's complete bundle of residential offerings includes voice, data and video:

  • Voice: Flat-rate telephone service to all fixed-line phones in Italy.
  • Data: Flat-rate Internet access at a speed of 10 Mbps in areas where they have built out fiber.
  • Video: A complete lineup of broadcast services, plus VOD with over 3000 titles available.
  • Video Communications: High-speed video (768 Kbps) on the PC, or on the TV with a TVcam.

These services are available unbundled and in a variety of bundles with flat-rate and metered pricing. Unbundled services start at 30/month for TV plus metered phone and Internet access ("TV di FastWeb"). The complete flat-rate service bundle "Tutto FastWeb" is priced at 110/month including the TVcam. All services include primary telephony, so the subscriber can disconnect and stop paying for primary service from Telcomm Italia while keeping the same phone number. There is a one-time activation charge of 95 for any service.

FastWeb offers a network-based PVR service called "virtual VCR" at a charge of 2.80/month for 5 hours, with additional options for recording specific events, more hours etc. Traveling users can use an Internet-connected PC to set up to record programs anywhere they are.

In October, they launched TV-based videoconferencing and videotelephony. They report that over 15% of their fiber-based customers are requesting it. Their strategy is to offer the service as a free trial for a while to build community and a critical mass of users who have become accustomed to using it and then start charging for the service. The service is not limited to the FastWeb network since users can connect with others via ISDN using H.323.

A centerpiece of FastWeb's strategy has been to build offers starting with a foundation of telephony, then add data and video. We believe they did this for three reasons:

  • Italy's PC penetration and Internet usage are low compared with many other countries (19.5% per 100 inhabitants in Dec 02, according to the ITU and currently 35% of households, according to FastWeb). Thus any service based first on data would have been a niche.
  • FastWeb believed that voice was the most demanding service in the triple play (voice, video and data), and believed it would be easier to layer on additional services later if they built the network and support systems for primary voice. (This contrasts with B2 in Sweden, whose initial thrust and focus was Internet.)
  • They believe that providing whatever the customer needs in order to disconnect from the incumbent is a key success factor -- and voice is primary here.

Competition

FastWeb's main competition comes from Telecom Italia, the incumbent. FastWeb's success has spurred Telecom Italia to offer more than before, but they do not offer truly competitive services. In DSL-based data at the start, when FastWeb offered 1.2 Mbps data downloads, Telecom Italia offered 256 kb. FastWeb then offered 2 Mbps and now offers 4 Mbps. The incumbent has increased speed but has not matched FastWeb. Telecom Italia has countered FastWeb's new video communications offer by offering a PC-based function, but doesn't offer the TV-based version which appeals to a wider audience. FastWeb says its ARPU of 780 Euro is 3 times that of Telecom Italia.

We'll continue to track FastWeb to see if they can continue their rapid growth. We're especially interested to see what happens when they start charging for their video communications service. Sandy would be delighted to see it succeed; involved with video communications for many years at AT&T, she remains skeptical about the behavior changes that are required in order for the service to spread beyond a small group of users.

( www.fastweb.it ) ( www.ebiscom.it )

See http://www.bbhcentral.com/report/backissues/Report0106.html#link4 for our first report on FastWeb.