AT&T Pulls Out as Telecom Italia's Ownership Battles Rumble on  

The U.S. telecoms giant, AT&T, has pulled out of the race to acquire a stake in Telecom Italia's holding company, Olimpia, causing confusion over Telecom Italia's future. AT&T cited possible regulatory difficulties with the deal as its reason for pulling out and the decision was greeted with applause at the ongoing Telecom Italia shareholders meeting in Milan, Italy. AT&T's partner in the takeover talks, América Móvil, will, however, continue to explore possible alternatives for a potential investment in Olimpia (see World: 2 April 2007: Telecom Italia Signs Italy's First MVNO as AT&T, América Móvil Eye Takeover Bid).

AT&T's exit deepens the crises rocking Europe's fifth-largest telco, whose chairman, Guido Rossi, stepped down earlier this month after disagreeing with the key shareholder, Pirelli, over the future direction of the company. Shareholders are currently meeting and are expected to elect a new chairman and board for the company. Already the meeting is billed to be a stormy two-day rant and has seen demonstrations from Telecom Italia's union representatives about the need to block any foreign takeover of the company.

Outlook and Implications

An Unwavering Government: Despite the seemingly-discordant views of Italy's ruling coalition partners, the Italian government has remained resolute in its objection to the foreign control of Telecom Italia. The government's argument has been both succinct and clear: Telecom Italia's fixed network is a national asset and it has no intention of letting foreigners control it. The administration has moved a step further, promoting a proposal to split Telecom Italia and ring-fence its fixed-line network under tight control of the telecom regulator, Agcom. The regulator had previously suggested such a move for a wholly different reason—to ensure impartial access to the network by all telecom companies. Such a move will undoubtedly reduce Telecom Italia's attractiveness, lessening the number of suitors and, perhaps, helping guarantee Italian ownership of the company (see Italy: 13 April 2007: Italian Government Mulls Bill to Allow Telecom Italia Network Separation).

Nationalism vs Rationalism: The central theme of all the hesitation among Italian banks to take over Pirelli's stakes is that Telecom Italia is not worth as much as the amount for which Pirelli wants to sell it. The Italian government has been pushing the banks, prodding them to make a move and retain Italian control of Telecom Italia. But faced with an obviously underperforming company, the banks are having to decide between upholding Italian nationalism with its attendant goodwill and the need to make a sound, rational business investment. The banks' uncertainty, or quasi-confusion, is evident in their hesitation to commit themselves to a Telecom Italia deal. Instead, anecdotal reports suggest the banks are seeking to form partnerships—involving foreigners if necessary—to make a move on Telecom Italia. Italy's biggest retail bank, Intesa Sanpaolo, and investment bank Mediobanca are reported to be evaluating their options.

Europe to the Rescue: In the face of evident reluctance by the Italian banks to make a move for Telecom Italia, the Italian government may be preparing itself to accept another European telecoms company as the controlling shareholder in the Italian incumbent. Speaking on a trip to Japan, Italian Prime Minister Romano Prodi said a European operator could possibly emerge as Telecom Italia's leading shareholder. Prodi's remarks may help explain recent media reports too. Several newspapers reported yesterday that France Telecom has hired Morgan Stanley to advise it on a Telecom Italia deal while Telefónica is back in pole position as the preferred candidate to win Pirelli's Telecom Italia stake. Reuters reports that Mediobanca is working on a deal with Telefónica, whose interest in Telecom Italia has been rekindled as its key Latin American rival, América Móvil, seeks a backdoor route to gain dominance in the region.