Whether on the football pitch, the operatic stage or in the corridors of political power, the Italians always seem to have had a penchant for theatrics. But it is a French company with nineteenth-century roots that is responsible for the drama now engulfing Telecom Italia.

Vivendi owns just 24% of the former state-owned Italian incumbent. Yet it has effectively seized control of the business, to the apparent disgruntlement of some Italian government officials. What it plans to do with the operator has become a source of fascination both inside Italy and in the wider telecom world. And with a major strategic announcement in the works, this story's denouement could even involve the sale of Telecom Italia's entire fixed-line network, after executives this week declined to rule out a spin-off.

The uncertainty can be traced right back to Vivendi's chiefs, who have never quite figured out whether Vivendi should be a pure media company or one that also has a networks role. Known primarily as the owner of Universal Music Group and the Canal+ pay-TV business, Vivendi also had a sprawling telecom empire until just a few years ago, with businesses ranging from SFR in France to GVT in Brazil. But following a series of divestments, its only notable telecom asset today is Telecom Italia. Like a pizza in a patisserie, the operator does not quite fit in.

Far from regarding Telecom Italia (TIM) as tangential to its portfolio, however, Vivendi has taken advantage of its position as the operator's largest single shareholder to engineer a kind of takeover by stealth. After clashing with a series of Telecom Italia CEOs, it recently slipped its own man in through the back door. Amos Genish, who used to be Vivendi's chief convergence officer, took on the caretaker role of general manager in July, as Vivendi sought to allay concern about its growing influence. He was eventually named CEO last month. (See Vivendi Man Genish Formally Named Telecom Italia CEO.)

Figure 1: TIM's Top Man The latest Telecom Italia CEO, Amos Genish.

Nor is Genish the only Vivendi man now calling the shots at Telecom Italia. Arnaud de Puyfontaine, Vivendi's own CEO, took over as executive chairman in June, effectively demoting Giuseppe Recchi to a deputy role. With Vivendi men now occupying the top two positions in Telecom Italia, Italy's market watchdog considers Vivendi to have de facto control over the telco.

While Vivendi clearly lacks a controlling stake in Telecom Italia, it has been able to exercise huge influence because most other shares are held by an assortment of non-activist investors. According to Telecom Italia's own website, some 58.13% of shares are in the hands of foreign institutional investors, with 13.09% owned by "other shareholders." Most other investors appear either happy or unconcerned that Vivendi is taking charge.

Yet the French conglomerate evidently faces some political hostility within Italy, where Telecom Italia is seen as a strategic national asset, much as former state-owned telcos are in other countries. Italian government authorities are reported to be seeking a fine from Vivendi. The pretext, coming soon after the Italian watchdog said Vivendi was in control of Telecom Italia, is that Vivendi should have notified authorities of this situation. Vivendi has refuted the charge that it now controls Telecom Italia, but may prefer to pay a fine of hundreds of millions of euros than try to increase the size of its stake. Given Telecom Italia's current market capitalization, acquiring enough shares to give it majority control would cost about €4.2 billion ($4.9 billion).

Next page: Open to a spin-off?

Open to a spin-off?
A possible alternative to either course of action would be the sale of network assets. Some observers believe Telecom Italia's fixed-line business could be combined with Open Fiber -- a broadband venture owned by Enel, a state-controlled energy player, and Cassa Depositi e Prestiti, a state-owned investment bank -- to create a national broadband network. De Puyfontaine was this week reported by Reuters to be keeping an "open mind" about spinning off the fixed-line business. Vivendi might then be left to operate Telecom Italia as a retail service provider offering broadband and media services over a state-owned wholesale network.

Figure 2: Happy Chappy Vivendi CEO Arnaud de Puyfontaine is now also executive chairman at Telecom Italia and very pleased to have multiple jobs.

Vivendi is under some pressure to execute a spin-off largely because it also holds a big chunk of Mediaset, Italy's main commercial broadcaster. It has gradually built up its stake in that business and today owns about 28.8% of it. Fininvest, a holding company controlled by former Italian Prime Minister Silvio Berlusconi (with whom Vivendi has previously locked horns), remains the largest Mediaset S.p.A. shareholder, with a 39.53% stake. But Italian authorities had flagged concern about Vivendi's influence across both the telecom and broadcasting sectors even before Genish took over as general manager of Telecom Italia. In April, Vivendi was given a year to cut its stake in either the broadcaster or the telco.

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Like operators in other markets, Telecom Italia has been packaging up telecom and media services and delivering them to customers for a single bill. Vivendi is undoubtedly keen on bundling Telecom Italia's services with Mediaset's content offerings. Yet its overarching strategy is to create a European media powerhouse, leveraging assets such as Canal+ and Mediaset. It has even talked of becoming a European alternative to movie-streaming giant Netflix. How Telecom Italia fits into this strategy remains unclear. (See Vivendi Still 'Hopeful' of Becoming Europe's Netflix.)

Even if it wants the distribution capabilities and customer relationships that come with a telco business, it could have these without owning the actual network. Australia's Telstra has been forced to sell network assets and give up some wholesale activities, but that has not stopped it from delivering TV services to its customers.

Nevertheless, Telecom Italia has said that it continues to regard its network as a strategic asset and has no plans to sell it. Such a radical step could upset some of the shareholders that have been happy to go along with Vivendi's plans so far and regard the core telecom business as a dependable source of profits. And if Vivendi ultimately rejected the move, it would hardly be the first company to see the attractions of owning both networks and media assets.

Until Vivendi has more to say, no one is quite sure how this story will play out. But the best dramas have always thrived on their unpredictability.

— Iain Morris, News Editor, Light Reading