US embassy cable - 02ROME5989

GOI SELLS REMAINING STAKE IN TELECOM ITALIA

Identifier: 02ROME5989
Wikileaks: View 02ROME5989 at Wikileaks.org
Origin: Embassy Rome
Created: 2002-12-16 08:31:00
Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY
Tags: ECPS EFIN ECON KPRV ETRD EFIN ECON ETRD IT WTRO USTR EUN ITECPS KRV WTRO USTR EUN
Redacted: This cable was not redacted by Wikileaks.
This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ROME 005989 
 
SIPDIS 
 
TREAS FOR OASIA HARLOW, CARNES 
PARIS FOR USOECD 
 
SENSITIVE 
 
                       UNCLASSIFIED 
 
PAGE 02        ROME  05989  01 OF 02  160837Z 
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. 
 
                       UNCLASSIFIED 
 
PAGE 04        ROME  05989  01 OF 02  160837Z 
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 
 
INFO  LOG-00   AGRE-00  AID-00   AIT-03   CEA-01   CIAE-00  CIP-00 
      CTME-00  INL-00   DINT-00  DODE-00  ITCE-00  DOTE-00  SRPP-00 
      EB-00    EXME-00  E-00     FAAE-00  UTED-00  FCC-01   VC-00 
      FRB-00   H-01     TEDE-00  INR-00   ITC-01   JUSE-00  LAB-01 
      L-00     VCE-00   AC-01    DCP-01   NSAE-00  NSCE-00  OES-00 
      OMB-01   DHS-00   OPIC-01  PA-00    PRS-00   ACE-00   SP-00 
      SSO-00   SS-00    STR-00   TEST-00  USIE-00  FMP-00   DRL-02 
      G-00     SAS-00     /014W 
                  ------------------182CEE  160842Z /38 
R 160831Z DEC 02 
FM AMEMBSSY ROME 
TO DEPT OF TREASURY WASHDC 
SECSTATE WASHDC 7330 
INFO USDOC WASHD 
USEU BRUSSELS 3004 
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, KRV,ETRD, WTRO, USTR, EUN, IT 
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 
 
> 
 2002ROME05989 - Classification: UNCLASSIFIED 


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