UPDATE: T.Italia Mulls New Co for Network; Towers Sale - Sources

ROME (Dow Jones)- Telecom Italia is considering spinning off its fixed-line network into a new company, in order to allow the entry of new investors able to support the multibillion euro investments needed to build up a next-generation network, people familiar with the situation told Dow Jones Newswires Wednesday.

Italy's largest telecommunication operator, which is looking for fresh capital as it faces a EUR37 billion debt load, is also studying the sale of up to 5,000 of its mobile transmission towers in order to inject up to EUR2 billion in new funds, the people said.

The two strategic options could be discussed as soon as Telecom Italia's board meets Sept. 25.

The network spinoff plan, however, may face the opposition of Telecom Italia's key foreign shareholder Telefonica, which has always opposed a corporate spinoff of the network, seen as a key strategic asset.

"The plan being studied sees a spinoff of Telecom Italia fixed-line network and the creation of a new company, to allow public or private investors injecting new funds in the creation of a next-generation network," one of the sources said.

The head of Italy's regulator AGCOM said Tuesday that Telecom Italia hasn't enough cash flow to invest in a next-generation network (NGN). He indicated that an investment ranging from EUR8 billion to EUR15 billion is needed to build up Italy's NGN.

Spanish giant Telefonica could be allowed to participate in the new network company and invest fresh funds in the broadband project, one of the sources said.

Recent reports in the Italian press have indicated that Telecom Italia has also been searching for new partners in Arab countries and that new investors could take up to a 10% stake in the company. Sovereign funds from Libya, Kuwait, Qatar and Saudi Arabia were contacted by the company, according to Italian papers.

But Telecom Italia said Tuesday these reports on its possible moves, including a network spinoff, are just speculation and reiterated that its new business plan will be unveiled by year-end.

Telecom Italia's stock - which hit fresh 10-year lows earlier this month - has been boosted by talks of new investors and a network spinoff, which would unlock investments in the broadband infrastructure. By 1255 GMT, shares were up 2.8% at EUR1.10, outperforming an overall positive market.

-By Giada Zampano and Sabrina Cohen, Dow Jones Newswires; +39 06 69766925; giada.zampano@dowjones.com

(END) Dow Jones Newswires

Posted to the site on 17th September 2008