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Tuesday, September 12, 2006

Telecom Italia: Doing a Materazzi?

The jungle grapevine is working overtime with analysis of the comments out of Milan last night.

After the World Cup final, nearly everyone in the world knows that the Italians like to feign injury with the slightest pressure. My own slightly twisted interpretation of the Tronchetti move is that it could be the world’s biggest (and potentially most rewarding) bluff. Obviously, I’m in favour of administering a healthy dose of capitalist medicine to the Italian telecommunications sector, but I can’t see the Italian government liking the cure at all.

Could you imagine?
• The whole of the mobile sector owned by foreigners;
• Potentially the local loop being owned by hedge funds; and
• The second largest media company owned by someone viewed (in some Italian eyes) worse than Berlusconi.

The backlash is already starting with the Prime Minister, Infrastructure Minister, Economy Minister, Unions and every other man and his dog wading in expressing shock and horror.

Tronchetti is no fool and I think he would have been expecting this backlash all along. Perhaps Telecom Italia will in the end not being broken up after Tronchetti wrings a few “little promises” from the government. In this scenario: how could the regulator actually force Telecom Italia to lower prices or play fair with the competition?

I don’t think Tronchetti cares too much about public opinion and has history in changing his mind. In March 2004 he said buying the rest of TIM did not make strategic sense; in December he wrote a €20bn cheque to buy out TIM minorities saying 100% ownership was vital to exploit synergies.

The Telecom Italia position in Brasil is even more confusing. As far as I can remember, TIM cannot sell its mobile assets whole and will have auction them off piece by piece with no doubt Americas Movil, Telefonica and some local pension funds entering a cheap feeding frenzy. That is unless Tronchetti plans on getting Lula to change the Brasilian Law.