Telecom Italia and SpainÔÇÖs Telef├│nica may be seeking to merge, it has been reported.
Telef├│nica, which already controls nearly 23 per cent of Rome-based Telecom Italia, is said to be considering making an all-share offer for the Italian group.
Madrid-based Telef├│nica is Europe's largest telecommunications company by market capitalisation and would benefit from a deal through gaining in size and maximising synergies with Telecom Italia. A deal would mean about Ôé¼28 billion in sales and a larger presence in Europe and Latin America for the Spanish company.
A merger would let Telecom Italia, ItalyÔÇÖs largest telecommunications company, cut debt of about Ôé¼35 billion and provide it with funds to invest at home and abroad.
It is, however, thought unlikely that Italy would allow Telef├│nica to gain control of the country's fixed-line telephone network.
It is thought that the main obstacle for any deal would be anti-trust issues in the Brazilian mobile sector, where the two groupsÔÇÖ operations overlap.
Telef├│nica jointly owns market leader Vivo Participacoes, while Telecom Italia owns the third biggest player, TIM Participacoes, behind Claro, the local unit of Mexico's America Movil.
However, Telef├│nica has few areas of overlap with Telecom Italia in Europe, where regulatory obstacles to a deal wouldn't be as significant.
Anti-trust issues have already arisen over the two companiesÔÇÖ joint holdings in Argentina. Since Telef├│nica bought its minority stake in Telecom Italia, Argentinean anti-trust authorities have ordered Telecom Italia to sell its stake in Telecom ArgentinaÔÇöthe two European firms each own the two largest Argentine telecom companies, Telef├│nica de Argentina and Telecom Argentina.
According to reports, Italy's former telecoms monopoly is considered by Italian politicians to be a strategic asset which they don't want to fall into foreign hands.
But Italian banks that own stakes in Telecom Italia are said to be unsatisfied with their investments and may be open to selling their stakes later this year.
Italy's deputy minister for telecommunications, Paolo Romani, said last week that it would be important to maintain some kind of Italian governance for Telecom Italia, so as to retain a position in decisions on prioritising investments.
