Telecom Italia was thrown into confusion at the beginning of September when it announced controversial plans to restructure the company, including the possible sale of its mobile arm, TIM, and its core fixed-network business. The resulting furore, with threats of industrial action, a political hue and cry and alleged interference by Prime Minister Romano Prodi, climaxed in the resignation of Telecom Italia chief Marco Tronchetti Provera on September 15.
At the heart of the row is Telecom Italia's wish to re-style itself as a 'media company'. This in turn stems from a long-running series of talks with Rupert Murdoch's News Corp over a possible cross-shareholding, merger or even outright takeover of News Corp's Sky Italia broadcasting unit. Such a combination, with Sky's satellite broadcasting service meshing with TI's broadband IPTV offer and the pair combining their content resources, is hardly unusual in Europe today.
Where the Italian carrier dropped its bombshell, however, was in an September 11 announcement of plans to separate its PTO and mobile businesses from the new media 'powerhouse' with the implication that these two units might be sold off completely. Angry trade unions quickly called for strikes to protest the proposal.
The company's outline strategy is taking things much further than any of its European counterparts. In fact, most of the latter are moving in the opposite direction, knitting all their operations closer together in the name of 'convergence', whether between fixed and mobile services or between content and distribution.
Telecom Italia had appeared to be part of that trend when, last year, it bought back 45% of Telecom Italia Mobile at a cost of roughly $20 billion. The wireless unit had been spun-off in 1995. The instigator of the buy-back was Tronchetti Provera, who would now appear to have had second thoughts on the way forward. He took the helm at TI in 2001 when a consortium led by Pirelli bought out the previous ownership consortium, led by Olivetti, which in turn had launched a successful raid on the company in 1998.
Change in policy‾
Telecom Italia's recent history has been dominated by the tinkerings of Italian industrial interests and their tendency to treat TI as a financial cash cow. There are suggestions that the true reasons behind the new break-up/sell-off gambit have little to do with telecoms strategy and everything to do with managing debt at TI and its parent companies, Pirelli and Benetton.
Under the leadership of Silvio Berlusconi, industrial assaults on Telecom Italia were generally waved through, with Rome declining to exercise the rights it retains through its 'golden share' in the company. Berlusconi's defeat by Romano Prodi in the May election may have changed that, ushering in a left-leaning government with less instinctive reliance on the workings of the free market.
While Prodi immediately denied interfering in Tronchetti Provera's plans beyond expressing the hope that the company remain under Italian ownership, there were indications that Rome might be ready to block the move. It is this that led to Tronchetti Provera's resignation and has fanned the flames of a fierce debate between left and right over state interference in the company.
What happens next is hard to say. The plans are certainly not dead while the government refuses to specify what it will and will not tolerate in the company's affairs. TI continues to insist that no firm decision has been taken on the sale of TIM and/or its network business, but the motives of TI's owners are unlikely to have changed overnight with the departure of Tronchetti Provera.
The events will nevertheless have alerted potential buyers to the prospect of a deal further down the line. Front-runners in a sale of TIM would appear to include Deutsche Telekom's T-Mobile arm and Telefç‘ˆica/O2 of Spain. Neither of these would appear likely to please Prodi, however.
Possible buyers for its fixed-network operations are considered more likely to be drawn from the private equity camp, although it is unclear whether TI will somehow attempt to retain control of its broadband assets in order to underpin its multimedia IPTV strategy. Again, Deutsche Telekom is thought to head the list of potential suitors.
The nature of Italian tele-politics tells us that the matter is unlikely to be resolved in a hurry. Some believe that the chaos could even flush out a hostile bid for Pirelli or the Olimpia holding company, which is its key vehicle for ownership of TI. Any such move would place Italy's shambolic takeover regulations and Prodi's political intentions in the spotlight once more.