Bloomberg News

Telecom Italia Sees Lack of Tech Savvy Hurting Cloud Growth

December 12, 2011

(Updates with analyst comment in seventh paragraph.)

Dec. 6 (Bloomberg) -- Telecom Italia SpA’s home country risks falling behind in the $68.3 billion market for computer- cloud services that allow clients to cut costs because of Italy’s information technology “illiteracy.”

“It usually takes more time for a new technology to be accepted in Italy,” Simone Battiferri, who’s responsible at the country’s biggest phone company for cloud technology, said in an interview. “The level of IT literacy in the country is among the lowest in Europe.”

Battiferri predicts Telecom Italia’s sales from cloud computing, which lets clients rent software delivered over the Web rather than install it on their own machines, will grow by a double-digit percentage next year.

Italy, pushing through austerity and growth measures to trim the euro-region’s second-biggest debt, ranked 51st in the World Economic Forum’s 2011 ranking of countries’ ability to use and benefit from new technologies. The adoption of remote computing services via the Web reduces the need to maintain hardware and can cut companies’ information technology costs by as much as 60 percent, Battiferri said.

Telecom Italia, based in Milan, and other former phone monopolies in Europe, such as Germany’s Deutsche Telekom AG, are trying to expand services such as cloud offerings to make up for declining revenue from traditional voice services.

Global Market

As researcher Gartner Inc. estimates the global market for cloud services will surge to $148.8 billion in 2014 from $68.3 billion in 2010, Italy risks falling behind in an industry that is one of the fastest-growing technology segments.

“Many reports indicate that Italy is the laggard among the G8 countries for IT literacy,” said Saverio Papagno, an analyst at AZ Fund Management in Luxembourg. “The elements contributing to this delay include the low penetration of fixed-line broadband and the scarce adoption of IT services by the public administration. Telecom operators can help reverse this trend, making broadband accessible to as many users as possible.”

SAP AG, the largest maker of business-management software, last week agreed to buy SuccessFactors Inc. for $3.4 billion in cash, six weeks after archrival Oracle agreed to buy another cloud competitor, RightNow Technologies Inc., for $1.5 billion.

Apple Inc., aiming to capitalize on a shift away from personal computers, this year introduced the iCloud service that stores music and other files online and keeps devices synchronized wirelessly.

Radical Change

Large companies have been especially slow to adopt new technologies, Battiferri said.

“Small and medium-sized companies have been taking up the service more rapidly as it’s easier for them to move to the cloud than bigger corporations,” said Battiferri, who also heads Telecom Italia’s top-client division. At some companies, a lack of IT expertise has “slowed the adoption of these new services,” he said.

Telecom Italia started its cloud-computing service, called Nuvola Italiana, in September 2010. Chief Executive Officer Franco Bernabe said at the time the company had to “change its skin in a radical way” and sell integrated services and not just connectivity.

‘Wait and See’

Telecom Italia on Nov. 11 said domestic sales fell 6.2 percent to 14.1 billion euros in the first nine months, hurt by a 9.2 percent decline in wireless revenue. At the same time, the company reported a 33 percent increase in third-quarter profit on growth in Latin America.

The company’s shares rose 0.6 percent to 87 euro cents as of 10:05 a.m. in Milan trading. The stock has declined 10 percent this year, valuing the company at 16.1 billion euros.

The Italian operator has about 1,500 cloud customers, Battiferri said, declining to say how much revenue it receives from them. Sales from this service are included under information and communication technology, which rose 8.5 percent to 585 million euros in the first nine months of this year.

The value of the cloud-computing and infrastructure market is expected to reach about 2 billion euros ($2.7 billion) in Italy at the end of 2014, Battiferri said.

“In the current macroeconomic environment companies will increasingly seek to cut costs and this could help boost cloud services but at the moment a wait-and-see approach is prevailing,” Battiferri said.

Cloud Certificate

Italy’s Prime Minister Mario Monti is working on a 30 billion-euro package of austerity and growth measures to prevent Italy from sparking the euro’s breakup. Monti, sworn in on Nov. 16 after Silvio Berlusconi resigned, is under pressure to move quickly as a selloff of the country’s bonds sent borrowing costs surging last month past the 7 percent threshold that led Greece, Ireland and Portugal to seek aid.

Battiferri said concerns about the security of cloud systems shouldn’t deter companies from adopting the technology. “Our cloud platform is completely safe and we’re compliant with the stringent Italian regulation on privacy,” he said, adding that all the company’s data centers are in Italy.

In May, SAP’s head of global solutions, Sanjay Poonen, said an outage on Amazon.com Inc.’s cloud-computing services this year, and a controversy around Google Inc.’s delays in providing e-mail services to 30,000 city employees in Los Angeles could make it harder for the software industry to convince clients to use cloud computing.

Deutsche Telekom’s T-Systems information technology unit said this year it is pushing regulators to introduce a certificate for German or European cloud operators to help companies guard data from the U.S. government.

Globalization, mobility, the “exponential” volume increase of data and the need to be flexible and faster will drive cloud computing adoption, said Piero Masera, managing director for Italy at consulting firm AlixPartners LLP. While there are concerns about security, regulation and reliability, “cloud computing is a trend that cannot be stopped,” he said.

--Editors: Simon Thiel, Robert Valpuesta

To contact the reporter on this story: Chiara Remondini in Milan at cremondini@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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