POLITECNICO DI TORINO Department of Management and Production Engineering Master of Science in Engineering and Management Diversification strategies in the ICT industry: the TIM case Supervisor Candidate Prof. Luigi Benfratello Monica Quarto Academic Year 2018-2019 Contents Introduction ........................................................................................................................... 5 Chapter 1: The Italian Telecommunications Industry ........................................................... 7 1.1 Historical background of the Italian telecommunications industry ........................ 7 1.1.1 Technological development: from fixed telephony to the explosion of the Internet and mobile technologies .................................................................................................................... 8 1.1.2 Market structure and the role of regulation: from natural monopoly to the liberalization process and current regulatory framework ......................................................... 10 1.2 Structural features of the ICT industry ................................................................. 13 1.3 Current scenario and market trends ...................................................................... 17 1.3.1 Competition .............................................................................................................. 17 1.3.2 Commoditization ...................................................................................................... 21 1.3.3 Diversification and ICT convergence ....................................................................... 24 Chapter 2: TIM and the diversification strategy.................................................................. 27 2.1 TIM: an overview ................................................................................................. 28 2.1.1 Group structure ......................................................................................................... 28 2.1.2 Reference markets .................................................................................................... 29 2.1.3 Competitive position in Italy .................................................................................... 29 2.1.4 Ownership and financial position ............................................................................. 31 2.2 Diversification ...................................................................................................... 33 2.3 TIM’s strategy since liberalization ....................................................................... 39 2.3.1 The quest for synergies............................................................................................. 40 2.3.2 Horizontal vs lateral diversification ......................................................................... 43 2.3.3 The role of bundling ................................................................................................. 44 Chapter 3: The Cloud Computing Industry ......................................................................... 47 3.1 What is Cloud Computing .................................................................................... 48 3.1.1 Definition ................................................................................................................. 48 3.1.2 Cloud Computing Architecture and Service Models ................................................ 50 3.1.3 Deployment models and migration paths ................................................................. 52 3.1.4 Latest international industry trends .......................................................................... 54 3.1.5 The economics of Cloud Computing ........................................................................ 56 3.2 Demand side ......................................................................................................... 58 3.2.1 Key advantages and drivers of cloud adoption......................................................... 59 1 3.2.2 Risks and doubts about adoption .............................................................................. 59 3.2.3 The Cloud Transformation in Italy ........................................................................... 61 3.3 Supply side ............................................................................................................ 64 3.3.1 Major worldwide providers and international context ............................................. 64 3.3.2 Italian providers ........................................................................................................ 67 3.3.3 Competitive scenario in Italy ................................................................................... 68 Chapter 4: TIM’s diversification strategy in Cloud Computing ......................................... 72 4.1 TIM in the Cloud Computing market ................................................................... 73 4.1.1 Datacenter infrastructure .......................................................................................... 73 4.1.2 Offered services ........................................................................................................ 76 4.1.3 Economic results ...................................................................................................... 78 4.2 Evaluation of TIM’s strategy and competitive positioning .................................. 79 4.2.1 Motivations and sources of strategic advantage ....................................................... 81 4.2.2 Possible shortcomings .............................................................................................. 85 4.2.3 Future prospects ....................................................................................................... 87 Conclusion ........................................................................................................................... 90 2 List of Figures Figure 1: Herfindahl-Hirschman Index in 2014-2018 ......................................................... 14 Figure 2: Revenues in Intermediate Services (source: AGCOM, 2019) ............................. 18 Figure 3: Market shares in the mobile market (source: AGCOM, 2019) ............................ 19 Figure 4: Number of annual portability operations and cumulative total (source: AGCOM, 2019) .................................................................................................................................... 20 Figure 5: Market shares in the fixed market (source: AGCOM, 2019)............................... 20 Figure 6: Data traffic and unit monthly data traffic from fixed connectivity (source: AGCOM, 2019) ................................................................................................................... 22 Figure 7: Average monthly data traffic of data SIMs (Gigabytes/month) .......................... 22 Figure 8: Revenues from voice and data services (billion €) (source: AGCOM, 2019) ..... 23 Figure 9: Prices trend (general index vs telecommunications) with 2010=100 (source: AGCOM, 2019) ................................................................................................................... 24 Figure 10: Directional diversification relationships between the TLC and other related sectors (source: Wulf and Zarnekow, 2011) ....................................................................... 26 Figure 11: Market shares in the Residential and Business fixed market segments (source: AGCOM, 2019) ................................................................................................................... 30 Figure 12: Market shares in the Residential and Business mobile market segments (source: AGCOM, 2019) ................................................................................................................... 31 Figure 13: The Ansoff Matrix ............................................................................................. 34 Figure 14: Relationship between diversification and performance (Johnson et al., 2017) . 36 Figure 15: The BCG (Boston Consulting Group) Matrix (source: Cantamessa & Montagna, 2015) .................................................................................................................................... 38 Figure 16: Consumer preferences for two generic goods sold separately ........................... 45 Figure 17: Consumer preferences for two goods in case of bundle .................................... 45 Figure 18: Layers of a Cloud Architecture .......................................................................... 50 Figure 19: IaaS, PaaS and SaaS service models .................................................................. 51 Figure 20: Migration strategies (source: Osservatorio Cloud Transformation, 2019) ........ 54 Figure 21: Breakdown of expenditure in Public & Hybrid Cloud per sector (source: Osservatorio Cloud Transformation, 2019) ......................................................................... 58 Figure 22: Worldwide cloud adoption (source: Gartner) .................................................... 61 Figure 23: Cloud market value growth trend in Italy (source: Osservatorio Cloud Transformation, 2019) ......................................................................................................... 62 3 Figure 24: Expenditure in IaaS, PaaS and SaaS services .................................................... 63 Figure 25: Worldwide Cloud Computing Market Shares, revenues