By Deepa Babington
ROME, July 17 (Reuters) - Italian telecom operators have cautiously welcomed a proposal to create a state-backed vehicle to roll out a high-speed broadband network, but the project faces major hurdles -- like funding -- before it can take off.
Italy's telecom regulator last week proposed setting up a private-public holding modelled along how utilities operate networks, with funds from both companies and the state. Tariffs would be set to compensate their investment.
Such a project would have major implications for Italian telecom operators like debt-laden Telecom Italia. It has come under political pressure to spin off its fixed-line network to spur Italy's broadband ambitions.
The company, which had strongly opposed any efforts to spin off its network, said it was open to the new fibre-optic company idea, but that any investment in it must be profitable.
Fastweb -- Italy's No. 2 telecom player behind Telecom Italia -- told Reuters the idea was "interesting", but added there were probably more immediate ways of setting up a high-speed network, such as via network-sharing agreements.
"(The) idea of setting up a public-private company to spur broadband investment is interesting and ambitious, however such an idea will depend essentially on the industrial decisions taken by the individual companies involved," Fastweb Chief Executive Stefano Parisi said in an email to Reuters.
He said the idea was so "embryonic" that Fastweb could not give an estimate of how much it would invest under such a plan. Fastweb is controlled by Swisscom AG.
Italian telecom operators have so far focused on building fibre in areas considered promising, such as cities like Milan.
Any plans for a nationwide fibre-optic network will cost several billion euros. A report by a government adviser this year suggested a network covering just 25 percent of households would cost 5.4 billion euros over four years.
A broader plan creating an integrated fibre-optic and copper network covering 50 percent of households would require 10 billion euros over five years, the report said.
WISHFUL THINKING?
Some analysts, however, have their own doubts about whether the project can take off.
Banca Finnat Euramerica analyst Gianfranco Traverso Guicciardi noted that launching ambitious long-term plans are par for the course in Italy, only to have them fail to come to fruition due to lack of funding or other problems.
Expecting companies to fork out investments running into billions of euros at a time of economic crisis is an even tougher task, he said.
"I'm very sceptical, it seems like a lot of wishful thinking," he said. "We need to see if companies have the money do this. There have been a lot of nice words, but the facts are -- can companies allow themselves to set aside money for this?"
It is not even clear that there is enough demand across the country as a whole to justify a major fibre-optic build in Italy, Guicciardi said.
Telecom Italia, for example, has long maintained that its investment in a high-speed fibre-optic network would only be driven by demand and willingness to pay for it, saying both remain low at the moment..
The company's plans include investing 700 million euros over three years in a fibre-optic network, rising to up to 5 billion to 6 billion euros by 2016.
Telecom Italia, weighed down by 34.5 billion euros of debt and dividend payouts of 1 billion euros out of the roughly 3 billion euros in free cash flow it generates every year, would struggle to fork out more, Credit Suisse analysts said.
"How Telecom Italia could fund a major fibre build ... is unclear, with the risk remaining that Telecom Italia either has to restructure its balance sheet or see a third party build out fibre in Italy," the analysts said. (Editing by Simon Jessop)