When the Government of Mr. Lamberto Dini dissolved, it left the Italian telecommunications and broadcasting system in the midstream of a major reform. The enabling legislation for a Telecommunications Regulatory Authority had been adopted, but necessary implementing legislation had not even been discussed. Three major bills for a reform of the telecommunications and broadcasting system had been discussed and amended, but no final decisions had been reached. There was agreement to privatize STET (Societa Finanziaria Telefonica), the holding company of the State telecommunications company, Telecom Italia S.p.A., but no definitive plan for privatization had been reached. In addition, the possibility of opening a bid to license a third, cellular telephone services company had also been discussed, but no bid was opened. This situation must be seen against the background of a European Union deadline for the liberalization of fixed, voice telecommunication services by January 1, 1998, a decision of the Italian Constitutional Court condemning existing quotas for private broadcasting, and a European Commission decision condemning the bid process, in 1994, to award license to the second, cellular telephone services company in Italy, Omnitel Pronto Italia.

The new Italian Government, under Prime Minister Romano Prodi, has stated its intention to focus serious attention on telecommunications. As an ex-Chairman of the Industrial Reconstruction Institute ("IRI"), which is STET's majority shareholder and author of all detailed plans for its privatization, Mr. Prodi appears well equipped to reform and privatize Italian telecommunications.

The Constitutional Court decision referred to above requires reform of the broadcasting system. Temporary legislation that was adopted in reponse to such decision will expire in August of this year. The Government will therefore be under significant pressure to move existing legislative proposals for permanent reform through Parliament. These proposals aim to reform the telecommunications and broadcasting system in conformance with the Court's sentence, European Union law, and the realities of the market. Among other things, the new legislation should address cross ownership between telecommunications and broadcasting companies, ownership and use of cable and satellites, and the manner in which licenses for all forms of broadcasting are granted. Because Law 474 of 1994 prohibits the privatization of public utilities before regulatory authorities are established, privatization of Italian telecommunications will of necessity follow creation of a Telecommunications Regulatory Authority. Law 481 of 1995 created the rough framework of the Telecommunications Authority, but its operation still awaits the drafting and adoption of implementing legislation.

Once the Telecommunications Authority is functional, the Government may legally privatize its telecommunications company, although in practice such privatization should also await the legislative reform of the sector. Newly appointed Minister of Post and Telecommunications, Mr. Antonio Maccanico, has told the press that a Telecommunications Authority could be made operational within two months and that legislation to reform the telecommunications and broadcasting system could be adopted within five months following the completion of the Authority. This would clear the way for privatization of the telecommunications monopoly by early 1997.

The telecommunications holding company, STET, is 60% owned by IRI, and owns 65% of the corporate capital of Telecom Italia S.p.A., which is the product of an August 18, 1994, merger of various, government owned telecommunication companies, and has a monopoly on fixed, voice transmission services. Both Mr. Prodi and the present chairman of IRI, Michele Tedeschi, have recommended that STET be privatized en bloc, rather than being broken up into its various service components, and that the privatization be conducted in two or three offers during the year. Mr. Maccanico has more recently stated, however, that some of the more specialized divisions should be privatized separately. If the sale follows the majority of Italian privatizations, it will take the form of a public offer of shares, with specific numbers of shares being reserved for domestic and foreign buyers, both among the public and institutional investors. STET is listed on the Milan and New York securities exchanges.

Telecom Italia S.p.A., the ultimate target of the privatization, is healthy and growing, although it recently spun off both its mobile telephone division, Telecom Italia Mobile S.p.A., and a company controlling a segment of its satellite activity, Nuovo Telespazio. Telecom Italia's draft financial statements as at December 31, 1995, show a turnover of about 30 trillion Lire (about $20 billion), an increase of 3.2% on 1994, and net profits of about 1.7 trillion Lire (about $1.2 billion), an increase of 20% on 1994 (which also showed a significant increase on 1993). The company has substantial holdings in telecommunications companies in South America, and is actively seeking acquisitions in the privatizations of Eastern Europe and Russia. Through its parent, STET, and a multimedia affiliate, STREAM, Telecom will also benefit from an alliance with IBM that has been in negotiations and gradual solidification for some time.

Cellular telephone services in Italy have already been partially placed in private hands, although Omnitel Pronto Italia, the sole private competitor, owned by Olivetti, Air Touch, Bell Atlantic, and others, was forced to litigate against the State cellular company at various stages of its initial operations. The European Commission has condemned the fee (750 billion Lire) which Omnitel was forced to pay to enter the market, and thus the bid for a third competitor may well be conducted differently. Known candidates for the third position are Albacom, a joint venture owned by British Telecom, the Banca Nazionale del Lavoro ("BNL"), and Mediaset, and AT&T-Unisource, a joint venture in which the Dutch, Swiss, Swedish, and Spanish telephone companies, in addition to AT&T, have holdings.

Preparations for the complete liberalization of telecommunications services in Italy have also focused on small, secondary communications networks that may be used as bases from which to begin competition against Telecom Italia. For example, Albacom makes use of a small network owned by BNL, and is reported to be negotiating with the State gas company ("ENI") for purchase/license of the latter's network. Infostrada, a company controlled by Glivetti, has recently leased the communications network of the State highway company. The communications network of the State railway, Telesistemi Ferroviari, is in the process of being privatized. In addition, the State electric company ("ENEL") has announced a major project to lay fiber optic cable along its existing network of energy transmission. Such network could be spun off to a telecommunications company when ENEL itself is privatized.

Thus in Italy, as elsewhere, the telecommunications sector is very active. The Prodi Government's focus on telecommunications could mean that the necessary reforms and expected privatizations will occur with acceptable promptness. As soon as they do, we will make note of them and provide you with all relevant information.

The content of this article is intended to provide general information on the subject matter. It does not substitute the advice of legal counsel.