Prodi suffers setback over Telecom Italia

Italian Prime Minister Romano Prodi yielded to opposition demands yesterday and agreed to face parliament over a clash with Telecom Italia, then suffered a setback when he lost a vote on the timing of his appearance.

The unprecedented row between Telecom Italia and the government has rocked the group's management and has put Mr Prodi's coalition, which has only a two-seat majority in the upper house of parliament, on the defensive.

The telecoms group set off alarm bells last week when it announced it would split off its network and mobile unit TIM in a move that sources close to the operation said presaged the sale of TIM, valued at about €30 billion.

The centre-left government, opposed to the sale of the last Italian-owned mobile group, criticised Telecom's controlling shareholder Marco Tronchetti Provera, who then resigned as chairman.

Upset over feared job cuts from the reorganisation, Telecom Italia's unions yesterday called a one-day strike on October 3 to protest against a strategy shift they fear will lead to job cuts at Europe's fifth-largest telecoms operator.

And in a reflection of keen corporate interest in the assets of Italy's biggest telecom group, ex-Prime Minister Silvio Berlusconi's broadcaster Mediaset SpA said it was closely watching the overhaul that could lead to the sale of TIM.

Mr Prodi had initially refused to bring the Telecom Italia dispute to parliament, then bowed to opposition demands and agreed to send a cabinet minister to spell out his government's stance toward Italy's fourth-biggest quoted firm.

But opposition politicians, emboldened by the resignation on Monday of one of Mr Prodi's aides who had recommended the renationalisation of Telecom Italia's network, insisted the prime minister explain his policy in person to parliament.

Party leaders agreed yesterday that Mr Prodi will address the lower house on September 28.

But later in the day he suffered a political defeat when the Senate adopted a motion by Mr Berlusconi's party to move up Mr Prodi's address to the upper house by one week to tomorrow.

Because Mr Prodi will be in New York tomorrow for the UN General Assembly, he will not be able to address the Senate. But his political rivals had made their point by highlighting the prime minister's precarious position in the Senate where already in four months he has resorted to several confidence votes.

Last week Mr Prodi took the unusual step of releasing a summary of talks he held with Mr Tronchetti, pointing towards the possible sale of a stake to Rupert Murdoch's News Corp., Time Warner Inc. or General Electric Co..

Two days later, Mr Tronchetti abruptly resigned as chairman, citing tensions with the four-month-old government.

Mr Murdoch confirmed yesterday he had discussed taking a stake in Telecom Italia but decided against it.