GOI SELLS REMAINING STAKE IN TELECOM ITALIA

UNCLAS SECTION 01 OF 02 ROME 005989

SIPDIS

TREAS FOR OASIA HARLOW, CARNES
PARIS FOR USOECD

SENSITIVE

UNCLASSIFIED

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E.O. 12958: N/A
TAGS: ECPS EFIN ECON KPRV ETRD EFIN ECON ETRD IT WTRO USTR EUN ITECPS KRV WTRO USTR EUN
SUBJECT: GOI SELLS REMAINING STAKE IN TELECOM ITALIA



1. (SBU) SUMMARY: UNEXPECTEDLY, ON DECEMBER 9, THE GOI
SOLD ITS RESIDUAL 3.5 PERCENT SHARE IN FORMERLY STATE-
OWNED INCUMBENT OPERATOR TELECOM ITALIA. ECONOMIC
AANALYSTS AND EMBASSY CONTACTS AGREE THAT THE SALE WAS
DICTATED BY BUDGET NEEDS, RATHER THAN BY NATIONAL
COMMUNICATIONS POLICY CONSIDERATIONS. TELECOM ITALIA
REMAINS CLOSELY CONNECTED TO THE GOI, AND ENJOYS MANY OF
THE ADVANTAGES IT HAD AS FORMER PARASTATAL INCUMBENT.
END SUMMARY.


2. (SBU) THE GOI SOLD ITS RESIDUAL 3.5 PERCENT SHARE IN
FORMER INCUMBENT OPERATOR TELECOM ITALIA FOR
APPROXIMATELY 1.4 BILLION DOLLARS ON DECEMBER 9.
INFORMED OBSERVERS VIEWED THE UNEXPECTED SALE AS
DICTATED PRINCIPALLY BY BUDGET, RATHER THAN BY
COMMUNICATIONS POLICY, CONSIDERATIONS. THE GOI NEEDS TO
FIND WAYS TO CUT THE BUDGET DEFICIT AND LONG-TERM DEBT.
(NOTE: THE DEFICIT/GDP RATIO IS WELL ABOVE THE 2.1
PERCENT TARGET, AND THE DEBT/GDP RATIO IS LIKELY TO
REACH 110 OF GDP BYAND END-2002.) SOME FINANCIAL AND
ECONOMIC ANALYSTS HAVE CRITICIZED THE GOI FOR SELLING AT
A TIME OF DEFLATED MARKET VALUES. THEY ARGUE THAT THE
GOI SHOULD HAVE SOLD ITS SHARES WHEN PRICES WERE
CONSIDERABLY HIGHER IF IT INTENDED TO SELL AT ALL.
FURTHERMORE, CRITICS ARGUE THAT THE GOI SALE OF SUCH A
SIGNIFICANT PERCENTAGE OF STOCK TO INSTITUTIONAL
INVESTORS, AT A PRICE BELOW TRADING VALUE, PUSHED DOWN
UNCLASSIFIED

PAGE 03 ROME 05989 01 OF 02 160837Z
SHARE PRICES AND PENALIZED SMALL INVESTORS.


3. (SBU) ON THE OTHER HAND, THE COMMUNICATIONS SECTOR
LARGELY WELCOMED THIS SALE, IRRESPECTIVE OF THE DRIVING
MOTIVES. PRESS REPORTS, AND COMMENTS FROM OUR TELECOM
ITALIA AND COMMUNICATIONS AUTHORITY CONTACTS, AGREE THAT
THE RESIDUAL GOI OWNERSHIP IN TELECOM ITALIA WAS
"USELESS." IT DID NOT GIVE THE GOI ANY MORE AUTHORITY
OVER TELECOM ITALIA THAN IT DERIVES FROM ITS "GOLDEN
SHARE" (SEE PARA 43 BELOW). YET IT CONVEYED THE
NEGATIVE IMPRESSION, TO "FOREIGN INVESTORS IN
PARTICULAR," THAT THE GOI WAS STILL DEEPLY INVOLVED IN
TELECOM ITALIA.


4. (SBU) THE GOI STILL RETAINS A "GOLDEN SHARE" IN
TELECOM ITALIA, WHICH EFFECTIVELY AMOUNTS TO IS A VETO
POWER OVER POSSIBLE MERGERS, DIVISIONS,AND TRANSFER OF
OPERATIONS ABROAD, AND/OR CONCENTRATIONS OF OWNERSHIP
CONCENTRATION. THE GOI HAS NEVER EXERCISED ITS GOLDEN
SHARE SINCE IT WAS INTRODUCED WHEN TELECOM ITALIA WAS
PRIVATIZED IN 1997, ALTHOUGH THIS HAS NOT PREVENTED THE
GOVERNMENT FROM INFLUENCING TELECOM ITALIA DECISIONS
THROUGH POLITICAL SUASION. (NOTE: THE GOI DID HOWEVER
THREATEN TO USE IT WHEN DEUTSCHE TELEKOM EXPLORED THE
POSSIBILITY TO BUYING TELECOM ITALIA.). BY VIRTUE OF
THIS GOLDEN SHARE, THE MINISTRY OF ECONOMY AND FINANCE
HOLDS ONE SEAT ON TI'S BOARD. THE MINISTRY OF ECONOMY
AND FINANCE, AS A TI SHAREHOLDER, HAS HELD A SECOND GOI
SEAT. HOWEVER, WE HAVE BEEN TOLD THAT, GIVEN THIS SALE,
THE TREASURY BOARD MEMBER WILL SOON RESIGN.

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5. (SBU) COMMUNICATIONS MINISTER MAURIZIO GASPARRI HAS
INDICATED PUBLICLY THAT HE VIEWS THE GOI'S GOLDEN SHARE
AS OBSOLETE. WE HAVE FURTHER HEARD THAT, IN LIGHT OF
THE LIBERALIZATION OF THE ITALIAN TELECOMMUNICATIONS
MARKET, THE GOI PLANS TO ELIMINATE THIS PROVISION
ENTIRELY IN JANUARY 2003. MOREOVER, OUR CONTACTS INSIST
THAT THE GOI IS UNLIKELY TO EVER EXERCISE ITS GOLDEN
SHARE, AS IT WOULD VIOLATE EU RULES, LEAVING ITALY
SUBJECT TO AN INFRACTION PROCEDURE.


6. (SBU) TELECOM ITALIA PROVIDES UNIVERSAL TELEPHONE
SERVICE AND ADMINISTERS NATIONAL SECURITY NETWORKS.
MOREOVER, TELECOM ITALIA COMPANY EXECUTIVES ADMIT TO US
THAT THE GOI INFLUENCES COMPANY POLICIES AND STRATEGIES.
TELECOM ITALIA COMPETITORS, BOTH ITALIAN AND FOREIGN,
ALSO HAVE TOLD US THAT THE GOI HAS ALLOWED TELECOM
ITALIA TO RETAIN MANY OF ITS FORMER INCUMBENT
PRIVILEGES. EVEN WIND/INFOSTRADA EXECUTIVES (PROTECT)
HAVE TOLD US THAT THEY OFTEN FEEL DISCRIMINATED AGAINST.
(NOTE: WIND/INFOSTRADA IS A COMMUNICATIONS COMPANY THAT
IS OWNED BY THE GOI THROUGH ENEL, THE STATE OWNED
NATIONAL ELECTRICITY CONGLOMERATE.)


7. (SBU) COMMENT: THE UNEXPECTED SALE OF THE GOI'S
REMAINING FINANCIAL STAKE IN TELECOM ITALIA APPEARS TO

UNCLASSIFIED

UNCLASSIFIED PTQ8457

PAGE 01 ROME 05989 02 OF 02 160842Z
ACTION EUR-00

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-------------- 182CEE 160842Z /38
R 160831Z DEC 02
FM AMEMBSSY ROME
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INFO USDOC WASHD
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AMEMBASSY PAIS
AMCONSUL MILAN
AMCNSUL NAPLES 7344
AMCONSUL FLORENCE

UNCLAS SECTION 02 OF 02 ROME 005989

SIPDIS

TREAS FR OASIA HARLOW, CARNES
PARIS FOR USOECD

UNCLASSIFIED

PAGE 02 ROME 05989 02 OF 02 160842Z
SENSIIVE

E.O. 12958: N/A
TAGS: ECPS EFIN ECON KPRV ETRD EFIN ECON ETRD IT WTRO USTR EUN ITECPS KRV WTRO USTR EUN
SUBJECT: GOI SELLS REMAINING STAKE IN TELECOM ITALIA

BE A PRIMARILY A FINANCIAL MOVE TO CUT THE PUBLIC DEBT,
RATHER THAN AN HARBINGER INDICATION OF CHANGING ITALIAN
COMMUNICATION POLICY. THE GOI RETAINS STRONG TIESTIES
WITH AND INFLUENCE OVER TELECOM ITALIA, AND THESE TIES
ARE LIKELY TO , REMAIN UNAFFECTED BY EITHER THISE SALE
OF STOCK OWNERSHIP OR THE FORMAL RELINQUISHMENT OF
"GOLDEN SHARE" RIGHTS.
SEMBLER

UNCLASSIFIED

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2002ROME05989 - Classification: UNCLASSIFIED