First head rolls as Telecom Italia farrago threatens to engulf prime minister

The fallout resulting from the sudden resignation of Marco Tronchetti Provera as chairman of Italy’s incumbent telecoms carrier following his acrimonious and very public row with prime minister Romano Prodi, fell in an avalanche over the Italian parliament and the operator yesterday as prosecutors announced that they are investigating the possibility of criminal wrongdoing both on the part of politicians and senior management within the telco itself. ~ ~ In the meantime, Angelo Rovati, on of Mr. Prodi’s top advisors, fell on his sword in the approved and time-honoured Roman manner in what is being seen as a last ditch attempt to protect his sponsor and mentor from further political harm.~ ~ It’s not likely that it will work as more and more evidence emerges to show that the Italian government has been wielding undue influence over, and directly interfering in, the internal affairs of what, since 1997, is supposed to have been a publicly quoted company. The affair is now way beyond the control of the spin-doctors of Prodi’s centre-left government that has been in power for a mere five months.~ ~ For many months past Telecom Italia was one of the most vocal cheerleaders for the concept of fixed/mobile convergence. So loudly and often did the telco trumpet the supposed advantages of such a strategy that many other operators both across Europe and in other parts of the world copied it. Then, suddenly last week, Telecom Italia abandoned the policy and did a spectacular u-turn by splitting the carrier into two discrete businesses – mobile and fixed.~ ~ After the shock announcement was made it quickly became apparent that the rationale behind the re-organisation was to sell-off Telecom Italia’s mobile arm, TIM, thus, theoretically “un-encumbering” the carrier and leaving it free to focus on its fixed line network and leverage perceived opportunities in broadband and media.

~ ~ The trouble is though that TIM is the last of Italy`s mobile operators that is still Italian-owned and the prospect of its sale to a foreign company quickly became a cause celebre in the Italian media and government.~ ~ It is thought that Deutsche Telekom, France Telecom and Telefonica of Spain have expressed interest in buying TIM as has US private equity corporation, The Carlyle Group, but Romano Prodi is known to be virulently opposed to the sale of TIM to any non-Italian companies.~ ~ The prime minister maintains that he had no prior knowledge of Telecom Italia’s plan to split itself in two and sell off its mobile interests but this affirmation is being treated with increasing scepticism, not to say incredulity, in Italy, especially in light of a leaked secret report written by the newly-departed Angelo Rovati apparently showing that not only did the prime minister know about what was happening but was also seeking clandestine means effectively to re-nationalise the country’s incumbent carrier by selling it to a state-owned holding company.~ ~ Such a move would be in clear breach of EU competition rules and would be all the more gobsmacking as Signor Prodi used to be Europe’s Competition Commissioner. Talk about a gamekeeper turned poacher.~ ~ At the weekend when the affair first broke, Angelo Rovati said he had “no reason to resign” but has evidently come under considerable pressure since. Yesterday he changed his tune and went, saying that he was doing so “to calm the situation down and clear the poisonous atmosphere.” He left insisting that the secret report has all been his own idea and that the prime minister knew nothing of his unilateral initiative. The Italian press, the political opposition and the business community simply do not believe this and neither does an increasing large percentage of the Italian public.~ ~ At first, Signor Prodi tried to brazen things out, refusing to go to parliament and make a statement. However, pressure is now such that he has been forced to change tack and he has agreed that “relevant cabinet ministers” will appear before MPs today. However, citing the "dignity of office" the prime minister insists that he will not face parliament himself, although just how long he will be able to maintain his rebellious stance remains to be seen, not least because international business is now openly expressing doubts as to the suitability of Italy as a destination for overseas capital investment under the current political administration.~ ~ Meanwhile, although Romano Prodi might be dead set against foreign ownership of TIM, Telecom Italia itself continues its overseas expansion. It has just acquired AOL’s broadband Internet access unit in Germany at a cost of € 675 million. AOL Germany has 2.5 million subscribers and Riccardo Ruggerio, Telecom Italia’s CEO, and a man who has been keeping an exceptionally low profile as the Tronchetti Provera/Prodi affair has developed, has raised his head sufficiently far above the parapet to be able to say, “This acquisition marks a further step in Telecom Italia’s strategy of focusing on broadband services and content delivery at an international level.”~