European super telco fires up the market

The creation of an European super telco could spur further alliances among rivals now that merger plans between Telecom Italia and Deutsche Telekom are firming up.

Yesterday, the board of the privatised Italian telecoms company gave the green light to merger plans with Deutsche Telekom after a lengthy board meeting and negotiations between both country's governments.

But the deal is by no means signed and sealed. Shareholders of both companies must approve the plan, and the merger must also be cleared by European competition bodies.

If the merger does go ahead, it will form one of the world's largest telcos. The combined group would be capitalised at around $175bn (£108 bn). Analysts believe that the proposed alliance could spur rivals into merger and acquisitive action in order to compete with such a large player.

Although Deutsche Telekom has outbid Olivetti -- the other main contender for the Italian telco -- in terms of price per share, its offer is not as advanced as Olivetti's.

Deutsche Telekom shares yesterday closed at $36 (£22).