Communications Regulatory Authority

The growth did not live up to expectations since the persisting difficult economic
situation encouraged companies to defer their investment in the modernization of
transmission networks.
As to each segment of data transmission services, trends were as follows:
• MDNS services (Managed Data Network Services) increased by 5.6%, thanks
mainly to IP VPN (virtual private networks on Internet protocol) increased in
one year by 18% (reaching a turnover of 408 million euros). The spreading of IP
VPN can be explained by their flexibility and efficiency and by the features of
safety and service quality, which recently improved considerably. In particular,
the presence of VoIP offers - complementary to IP VPN - enables companies to
converge all TLC services on a single IP infrastructure thus obtaining increased
rationalization and optimisation of its infrastructures as well as the reduction of
operating costs. Trends of growth of IP VPN revenues have been revised
downwards in the light of the replacement, which is slower than expected, of
traditional solutions of data connectivity (ATM/Frame Relay in particular) by IP
VPN. As a matter of fact, ATM/Frame Relay solutions continue to offer very
reliable services to companies;
• The dedicated circuits segment was characterized, on the whole, by a 6%
decrease; this reduction is however lower than expectations and can be ascribed
mostly to a drop in prices.
As far as the competitive framework is concerned, in 2005 a pick up in the
merger&acquistition activity has been recorded. The merger through incorporation of
Telecom Italia Mobile in Telecom Italia; the acquisition by British Telecom of the
entire Albacom shares of stock, the transaction with which BTAlbacom has
subsequently taken over 100% of Atlanet and the acquisition of 62.75% of Wind by the
Weather Investments fund are to be mentioned. With reference to the breakdown of
operators in terms of specialization of offer of TLC services no significant change has
been recorded. In addition to a group of operators completely or mainly focused on
services for companies (Colt, BTAlbacom, Elitel), there are operators carrying out their
activity mainly in the residential market (Tele2 and Tiscali) as well as operators catering
for both business and residential customers (Eutelia, Fastweb, Telecom Italia and
Wind).
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