IHS Global Insight Perspective | |
Significance | Fastweb has made every effort to co-operate with the prosecutor, a move which has paid off as it has avoided being placed in the hands of a court-appointed manager. |
Implications | There are fears the current scandal could cause untold damage to the brands of the accused operators, even if they are cleared of any wrongdoing. |
Outlook | Telecom Italia has not revealed if it has moved to avoid Sparkle being placed into administration, but there are suggestions that some discrepancies may have been disclosed by the operator in 2007. |
The Italian prosecutor in charge of the fraud and money-laundering probe into Fastweb and Telecom Italia's Sparkle has withdrawn a request to place the broadband operators into temporary administration.
The Rome prosecutor had called for the operators to be placed under court-appointed management for the duration of the investigation, which was launched at the end of February (see Italy: 24 February 2010: Fastweb Faces Business Suspension over Alleged Money-Laundering Scandal). The threat of administration was part of an ongoing investigation by Italy's financial police into the "suspicious telecoms contracts" at Fastweb and Telecom Italia's Sparkle cable unit, allegedly carried out with the knowledge of top executives at the operators.
The allegations include the evasion of some 38 million euro (US$51 million) in value-added taxes between 2003 and 2007, and the suspected money laundering of 2 billion euro, via the alleged fabrication of international phone-service purchases and sales between 2003 and 2006.
The Italian prosecutor has not made it clear if the tax-fraud allegations involving each company are somehow linked, but both Fastweb and Sparkle have denied any wrongdoing.
Outlook and Implications
- Fastweb Co-Operation and Assurances Win Reprieve: The unprecedented investigation saw arrest warrants issued for 56 people on alleged charges of money laundering and tax evasion, including Fastweb founder and former CEO Silvio Scaglia. Although he denies any wrongdoing, Scaglia has since stepped down from the board of the Italian operator, while owner Swisscom announced it was temporarily replacing Fastweb chief executive Stefano Parisi, who is also being investigated (see Italy: 5 April 2010: Swisscom CEO Takes Temporary Control of Fastweb to Avoid Court Administration). In a statement, Fastweb said it hopes the suspension will be resolved shortly and reaffirmed its belief that Parisi is not involved at any level in the alleged offences. Fastweb has also taken the measures of transferring the company's wholesale operations into a fully owned subsidiary called Fastweb Wholesale, and has submitted a financial guarantee of 11 million euro in the event that "administrative liability is ascertained". Fastweb's efforts to co-operate with the prosecutor have paid off, as it has avoided being placed in the hands of a court-appointed manager.
- A Relief for Fastweb Owner Swisscom: The decision will come as a great relief to Swisscom, as it continues to struggle with falling fixed-line revenues and the effects of the global economic downturn (see Switzerland: 18 February 2010: Swisscom 2009 Earnings Down 2.6%, Sees Slump Continue this Year). Swisscom has increasingly relied on the revenue boost from Fastweb to cover up a slump in performances at home, and the loss of steady revenue from the operator could have a serious impact on the Swiss incumbent's fortunes this year. However, the current scandal is causing untold damage to the brand, even if Fastweb is cleared of any wrongdoing.
- Has Telecom Italia Moved to Make Sparkle Clean? Telecom Italia announced separately that the Rome prosecutor's office has withdrawn the request to place Sparkle under court-appointed management. Had Fastweb and Sparkle been placed under court-appointed management, it would have set a precedent for an Italian publicly traded company, and would have had a material impact on the companies' businesses. Italian tax authorities have already seized around 300 million euro of Sparkle's cash and borrowing to cover potential tax payments and fines, but unlike Swisscom, this is unlikely to have a significant material impact on an operator the size of Telecom Italia. However, the Italian incumbent is yet to release its annual results, having postponed their publication because of the ongoing investigations (see Italy: 25 March 2010: Telecom Italia Postpones Annual Results Again as Sparkle/Fastweb Row Continues). Telecom Italia has not outlined any steps it may have taken to avoid Sparkle being placed into administration, but international credit rating agency Fitch said it recognises that the Sparkle investigation is related to events that took place in 2007, which Telecom Italia internally investigated and audited, and subsequently disclosed in its annual report.