Tiscali -- That's Italian for Internet

CEO Renato Soru on the ambitious expansion plans of Italy's premier ISP, which is adding 300,000 new subscribers a month

Renato Soru, 42, and his Sardinian company, Tiscali, have become Italy's most famous Internet success story. The first to introduce free Net service in the country a year ago, Soru is expecting sales of $140 million this year, up from $32 million in 1999. Tiscali's initial public offering in October led to a dramatic share run-up that quickly gave the two-year-old startup a $14 billion market capitalization -- bigger than auto maker Fiat.

Seizing the moment, Soru quickly expanded across Europe, snapping up more than a half-dozen Internet and telecom companies (see BW, 2/26/01, "An Italian Underdog Develops a Bite"). He recently spoke in Milan with Rome Bureau Chief Gail Edmondson about the company's strategy and its upcoming bid for a third-generation mobile license. Here are edited excerpts from their conversation:

Q: There's a shakeout under way among Internet startups. What's Tiscali's strategy for remaining a key player?


In the Net economy you incur costs for the first copy. Reproducing it costs nothing. Given this rule, either you expand or leave the game. There's a window of opportunity now to expand. Our strategy is to gain scale and be as European as possible. We are already ranked the No. 2 ISP in Belgium, we are No. 2 in Switzerland, we have a good position in Germany and France, and we are starting up in Spain. With more than 2 million subscribers, we may well be the No. 2 ISP in Europe. T-Online is adding 200,000 subscribers a month. We are growing faster than that, at around 300,000 per month.

Q: How would you compare your strategy to WorldOnline or Liberty Surf?


We have infrastructure. It's an advantage to have the backbone. We can move to broadband and can implement new services because we control the technology. Having the infrastructure is fundamental to us.

Q: How can you win against competitors that have deeper pockets?


We can win with better, more innovative services. We want to be first in leading the charge. The Internet is a new medium. The idea is to enlarge the customer base and earn a little money from a huge number of customers. The game will be to earn money from advertising, like television. What you are really selling on the Net is the attention of the customer to industry. The fees for services will go very soon to zero -- in two or three years, or faster. By 2002, advertising and e-commerce will be 50% to 60% of Tiscali's revenues. It's just taking off. We started from nothing this year, and in the last two months have seen advertising revenues jump to $1.5 million.

Q: How can Tiscali afford to compete for a third-generation cellular license when the bidding war in Britain has raised the ante in other European countries now to several billion dollars?


What is happening in Europe is totally wrong. Governments will change their view in the near future. The license for third generation is not like the license for GSM [global system for mobile communications]. If access to Internet had remained in the hands of a couple of oligopolistic companies, it wouldn't exist. The government will eventually be forced to require an open platform and give access to all players. This isn't a market for a few companies. I'm sure in a couple of years all networks will be open.

Q: What happens if Tiscali doesn't win a third-generation cellular license?


We will make a deal as a virtual network operator that will allow us to use the Net -- like the deal Virgin did with One-to-One.

Q: Is there a risk that the high cost of third-generation cellular licenses will stunt the market for the mobile Internet in Italy?


With the cost of licenses so high, Italy will not enjoy the same growth it could have had in mobile Internet. The question is whether it's more important to raise money for state coffers or have a high Internet penetration (for economic growth). Each point of Internet penetration represents an added percentage point of gross domestic product.

Q: Do you need to raise more capital?


We would like to make a capital increase. But we don't have a high burn rate. We lost $1.3 million in 1998 and $7 million in 1999.

Q: How fast is Tiscali growing, and how many subscribers do you forecast it will have by yearend?


Since Jan. 1, subscribers are up 90%. By yearend we will have a total of more than 4.0 million Europewide, with between 2.5 million and 3.0 million in Italy.

Edited by Douglas Harbrecht

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