Telecom Italia-Three merger prospect fading

A meeting of Telecom Italia's board isn't expected to signal the starters gun on a union between the two Italian operators, with stumbling blocks likely to consign the possibility of a merger to the scrapyard.
Written by Cristina Prina Ricotti, Contributor on

The possibility of a merger between Italy's incumbent Telecom Italia and H3G — the company behind the mobile operator Three — is looking increasingly unlikely.

On Thursday, Telecom Italia's board of directors is set to meet to address a number of delicate issues involving the company, with decisions to be made on the planned spin-off of its domestic fixed-line network, wider structural changes to the telco and the fading prospect of the merger with H3G, part of the Hong Kong conglomerate Hutchison Whampoa.

Telecom Italia chairman Franco Bernabè reportedly met with Italian prime minister Enrico Letta on Monday to discuss the situation and the possible outcomes of this week's meeting, according to Reuters.

Sources quoted in Italian business daily Il Sole 24 Ore claim that there are strong differences of opinion between senior executives at Telecom Italia, with some board members (including Bernabè) ready to begin talks with Hutchison Whampoa and others still yet to make a decision on whether to support such a move.

A precondition set by Hutchison Whampoa for any merger is that the Hong Kong company would become Telecom Italia's biggest shareholder, with 29.9 percent of the company — a scenario deemed almost impossible while Telecom Italia still retains control of the fixed-line network, which is considered a national asset. Talks on the subject of a merger could begin following a fixed-line spin-off, as H3G is only interested in Telecom Italia's mobile, not fixed, assets.

According to analysts quoted by Italian markets site Finanza, these talks are unlikely to lead to action due to the complexities of a possible merger.

While it is possible that Thursday's meeting might shed some light on whether the two telcos will merge, rumours suggest the board will instead simply consider a number of alternatives to increase competitiveness, alongside the option of proceeding with a merger.

Telecom Italia board member Tarak Ben Ammar, speaking to Italian media last week, said: "We have decided to dig deeper. Our aim is to find a solution that will increase the [Telecom Italia] share price and create revenue... We haven't ruled anything out."

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