Mediaset, Telecom Italia speculation heating up

Rumored merger would create giant

Speculation about a merger between broadcast powerhouse Mediaset and former state telecom monopoly Telecom Italia reached a fever pitch Monday, as local media reported that a secret deal between two of Italy's largest companies was in the works.

Both companies have issued repeated denials, but the rumors persist. On Monday, analysts said that the reports could be starting to weigh on the companies' share price, after a new round of them appeared in the local media.

"There are no indications from the companies that such a deal is being discussed, but if it is under consideration, it would be to their advantage to keep things quiet," Javier Noriega, chief economist with investment bankers Hildebrandt and Ferrar, said in an interview.

If true, the merged entity would be one of the world's largest communications and media companies. But a merger would also face tough antitrust speculation, both in Italy and on a European scale.

The media concentration would be the main trouble area, according to analysts.

Mediaset already owns three of seven national television networks, and Telecom Italia subsidiary, Telecom Italia Media, owns one national network. A merger would reduce the number of players in the television sector to two — state broadcaster RAI owns three networks — at a time when the government has been trying to add competition to the sector.

Such a deal would also raise eyebrows on a European scale, where Mediaset's holdings outside Italy — Spanish broadcaster Telecinco and Dutch reality television content producer Endemol are the main assets — could attract competition-related concerns when combined with Telecom Italia's various European Internet and telephony cooperation accords.

Both companies' shares fell compared with the overall market on Monday. Mediaset closed 1.3% lower, while Telecom Italia shares slid 2.6%. The overall market was about 1% lower on the day.