AT&T Targets Telecom Italia

Looking to further expand beyond its domestic base, AT&T Inc. on Sunday confirmed it is in negotiations to buy a stake in Telecom Italia indirectly through a company that owns many of the foreign carrier’s shares.

The proposal calls for AT&T to purchase a one-third stake in Olimpia S.p.A., a holding company with approximately 18 percent of Telecom Italia's ordinary shares. Mexican cellular operator America Movil also is considering an investment for one-third of Olimpia’s shares.

AT&T's investment is contingent on Movil's, the companies said. 

The talks come at a critical juncture for AT&T, which is still swallowing BellSouth and is months behind on its high-profile U-verse triple play deployment. The telco also appears to be shifting its stance by claiming it doesn’t need a franchise to offer IPTV because it is not providing cable TV, and that’s creating friction with municipalities.

AT&T said in prepared comments that it sees its proposed investment with the European telco as a means to “provide Telecom Italia with a strategic partner with whom it can share best practices and pursue joint interests.”

The valuation of the stakes in Olimpia which are the object of the possible sale would be based on a price per Telecom Italia share equal to 2.82 euros, minus the net debt of Olimpia on the closing date of the transaction.

Because of this, AT&T said it could not give even a range of the dollar value of the stake that it seeks in the carrier, according to a spokesman for the company.

Telecom Italia did not respond for a request for comment on reports that the Italian government is allegedly not pleased with the possible AT&T investment in the service provider. AT&T declined comment.

One analyst believes AT&T needs a partnership on the continent to be viewed as a global networking power.

“Italy has pretty good demographics for a broadband and business opportunity, and AT&T needs a real stake in Europe to be an international player,” said Tom Nolle, president of CIMI Corp. “Telecom Italia is the best EU choice it has in terms of likely cost and demographics, and it will shake things up here in the U.S. if they do a deal.”

While AT&T has customers in 137 countries and has maintained a partnership with Mexican telco Telmex for 17 years, the AT&T that existed before being acquired by SBC struggled for years with global networking through Concert, a high-profile partnership with BT.

The joint venture was supposed to target multinational companies with an array of services upon much fanfare at its launch in the 1990s. By 2002, Concert was shut down.

Telecom Italia has been doing well on its own of late, announcing on March 30 a deal with COOP Italia to form what it claims is the countries first mobile virtual operator.

COOP members will be able to make domestic and international calls, send and receive SMS and MMS messages, browse the Web and access value-added services. The new service will work in Italy and abroad, thanks to Telecom Italia’s existing international roaming agreements.

AT&T said Telecom Italia has a market capitalization of about $53.4 billion, and has 24 million landline, 57.9 million mobile and 8.6 million broadband connections, including broadband interests in the Netherlands, France and Germany and wireless in Brazil.

AT&T has already announced plans to invest roughly $18 billion in capital this year to strengthen its wireless, wireline and international networks.

In related news, the carrier won a statewide franchise in California on Marc 30. The company already offers its bundle in limited areas of several California cities. AT&T didn’t say how it would proceed in the state in the wake of the latest news. Verizon Communications Inc. was the first to receive such a deal in the state and has already begun rolling out its FiOS triple-play bundle.

AT&T Inc. www.att.com  

Telecom Italia www.telecomitalia.com

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