Imajin said:
Of course, there is the problem that Italy was making unreasonable demands from Austria just to stay neutral... what kind of POD would be needed to make them accept joining on the CP, considering that judging by their OTL attitude, Austria isn't going to give... Perhaps a promise of Albania, Malta, Tunisia, Savoy, Nice, and Corsica? That's quite alot, but I believe the secret agreements with Italy by the Allies promised them Dalmatia...
That's a point of view. From Italy's side, the problem was that A-H, contrary to the provisions of the Tripartite Alliance, always refused to accept giving any compensation for the changed situation in the Balkans. The main controversy arose after the annexation of Bosnia-Hercegovina. Later, both the Italo-Turkish war (with A-H thretening to act against any italian naval action against Albania) and the aftermath of the Balkan wars, with the joint powers intervention in Albania (where the Italian and the Austrian contingents were constantly at odds) contributed to aggravate an already tense situation. The German-Austrian-Italian discussion over naval actions in the Mediterranean in case of a global European war (assuming that the casus belli would be recognizable under the provisions of the Alliance) ended up without substantial results (1912-1913): while it was agreed in principle that the main Italo-Austrian fleets would be located in Sicily and at Civitavecchia to interdict French troop movements between the mainland and Algeria, no solution was found for the command of the task force; nor it was possible to agree on a suitable operational plan for the blockade of the Provence coast (and possibly for a landing sponsored by the Germans between Marseille and Nice). The outbreak of WW1 was completely outside of the provisions of the alliance (the ultimatum was delivered by A-H to Serbia, and the Italians were notified of it after its delivery): once again, any modification in favour of A-H of the situation in the Balkans required compensations, but the austrian diplomacy always refused to consider it. The German mediation was possibly not strong enough, and in any case it did not reach any positive conclusion.
I agree that an Italian intervention would have created a very difficult position for the Entente in the Mediterranean: besides the obvious difficulties of French movements between Toulon/Marseille and the African coast, the French fleet was not in position to interdict the actions of a joint Italian-Austrian task force, and the Royal Navy would have had substantial difficulties in reinforcing the Mediterranean in consideration of the need to bottle up the German High Sea Fleet in the Northern sea. Greece was still wavering between Entente and CP: the Italian intervention might strengthen enough the king to follow suit. At the end of 1915, there would be no chance for the defeated Serbian army to be rescued at Scutari. The Ottoman fleet might have been able to force the Aegean, and to join the Italian/Austrian navies.
OTL, the A-H fleet was effectively bottled up in the Adriatic, and never accepted the risk of a naval action. The same is true for the Ottoman fleet, which limited to some minor actions in the Black sea.
The Italian requests might be considered too high, but I do believe that the southern portion of the South-Tyrol, Trieste and Istria might have been acceptable and (putting aside the pride) would not have been a price too high to pay. The other Italian claims would have been against defeated enemies (mostly against France).
IMHO, an entry in the war on the CP side might have created a difficult internal situation for the Italian government, considering that the nationalists were agitating for a new war against A-H, to complete the reclaiming of the Italian lands, and the socialists were in favor of neutrality.
British diplomacy was much more effective in the months between September 1914 and March 1915, and possibly there you can find the reason for Italy joining the Entente (but Austrian obduracy played an important role).
Dalmatia was included among the benefits that should accrue to Italy after the conclusion of the war: then France opposition changed the rules. IMHO, the Italians should have taken better advantage of the A-H collapse in early November 1918: Trento, Trieste and Istria were effectively occupied before the end of the hostilities. A further effort to occupy all of Dalmatia and possibly Lubjiana (rather than waste forces in advancing toward Salzburg and Vienna) might have been much more profitable.