Cultural gaps could sink giant telecoms merger

Date: 22/04/1999

By Peter Chapman

CULTURAL differences may well sink the €161-billion mega-merger between Telecom Italia and Deutsche Telekom before the European Commission's anti-trust regulators begin probing the deal.

This warning from rival telecoms firms followed news that the Telecom Italia board had attached significant conditions to its agreement 'in principle' to the creation of the world's largest phone company.

Board members said they could only support an equal merger, despite DT's greater market worth, and called on the German government to “clarify the terms under which it will limit its voting rights in the new company”.

This is aimed at addressing fears that the deal would amount to German renationalisation of Telecom Italia, which was only privatised two years ago, because of Bonn's 74&percent; stake in its country's phone giant.

But some industry sources claim these issues could still jeopardise an Italian marriage to DT, even if shareholders and the board of directors finally approve plans to walk down the aisle.

” The Italians are, for some reason, quite sensitive about the Germans,” said an EU affairs manager with a major telecoms operator. He claimed the Italian authorities had never been “comfortable” that German engineering giant Mannesmann, together with local information technology group Olivetti, acted as Italy's second telecoms operator.

Rival operators also point out that Telecom Italia failed in earlier attempts to form big cross-border joint ventures, including deals with British firm Cable & Wireless and US company AT&T.

However, if the German-Italian merger is to go ahead, industry insiders agree with this week's warning from Acting Competition Commissioner Karel van Miert's spokesman that DT would be “well advised” to divest its interests in its Wind telecoms joint venture with France Telecom and Italy's state-owned energy company ENEL. “There cannot be much doubt about it,” said one.

Wind is one of a handful of rivals to Telecom Italia in its home market. Others include Mannesmann/Olivetti and Albacom, jointly owned by British Telecom and Mediaset.

The deal could also prompt calls for DT to leave the huge Global One joint venture it formed with France Télécom and US operator Sprint in order to win anti-trust clearance from the Commission, although some EU sources believe intense competition in other areas offsets the effects of the venture.

Another “possible option”, according to one EU source, would be a demand that DT complete the sale of its cable-TV network, although he admitted that the Telecom Italia deal would have little impact in this sector.

DT has already shifted its cable infrastructure into a separate company in response to Commission calls for greater competition in the EU cable sector, which is seen as a viable alternative to traditional telecom networks.