The storm enveloping Telecom Italia took on a new dimension yesterday when prosecutors in Rome announced that they would be looking into evidence of criminal wrongdoing. Shares in the firm - trading for the first time since the shock resignation of the group's chairman last Friday - rose at first on signs that the company would be allowed to press ahead with a radical restructuring but then eased back.
Evidence suggesting the government had an influential role in the affairs of a quoted company has pitched Romano Prodi's centre-left government into the worst political row since it won power in April. It has also raised old doubts about Italy as a destination for foreign capital.
In the latest development, Angelo Rovati, an adviser to Mr Prodi, resigned, saying he hoped it would "clear the poisonous atmosphere". Mr Rovati was the author of a report sent to the management of Telecom Italia, whose existence was revealed in the press last week, recommending the group sell its fixed-line operations to a state holding company.
On September 11, Telecom Italia announced a major change in strategy that would allow it to concentrate on broadband and media. The company said it intended creating two new firms, one each for its fixed-line and mobile operations.
The announcement made it likely that TIM, the last mobile operator in Italian hands, would be sold to a foreign investor. Mr Prodi said he was "surprised and disconcerted" and one of his ministers urged the government to use its "golden share" to block any sale.
Mr Prodi explained his astonishment by saying that Telecom Italia's chairman, Marco Tronchetti Provera, had not told him about the restructuring at a meeting this month. To back his assertion, the government then took the unusual step of releasing a statement with details of their discussion, including market-sensitive information on possible link-ups with News Corp, Time Warner and General Electric.
On Friday, the day after publication of Mr Rovati's secret report, Mr Tronchetti Provera stepped down, saying he hoped this would ease "tensions" with the government. He was replaced by the 75-year-old Guido Rossi, who has played a leading part in Italy's corporate history and oversaw Telecom Italia's privatisation in 1997.
His appointment, along with Mr Rovati's departure, was a key reason why investors at first took heart. Another was firm evidence that the group was pressing ahead with its declared strategy.
Telecom Italia confirmed yesterday it had bought AOL Germany's internet access business from Time Warner. The all-cash deal, which has yet to be cleared by regulators, is worth €675m (£456m).
It raises the number of Telecom Italia subscribers to more than nine million in Italy, France and Germany. The acquisition also makes Telecom Italia the second-biggest broadband provider in Germany.
