Court Revokes CNDC Ruling Forcing Telecom Italia to Divest 50% Stake in Telecom Argentina Holding

An Argentine appeals court has issued a resolution that revokes a ruling issued on 27 August 2009 by the country's antitrust agency, National Commission for the Defence of Competition (CNDC), that had ordered Telecom Italia to divest its 50% stake in Sofora, the holding that controls Telecom Argentina, EFE reports. The appeals court has based its decision on the fact that the sale had being ordered without previously listening to and allowing Telecom Italia to exercise the right of defence (see Argentina: 28 August 2009: Antitrust Authorities Force Telecom Italia's Exit from Argentina).

The appeals court also ruled that the CNDC, part of the Economy Ministry's commerce department, does not have jurisdiction over antitrust cases. It urged the Supreme Court to order the government to create a national antitrust tribunal to act in antimonopoly cases, as envisaged in a law passed in 1999.

Outlook and Implications

Although favourable to Telecom Italia's interests, this ruling only delays a final decision on the divestment. The ultimate verdict is now in the hands of Argentina's Supreme Court.

Telecom Italia's problems in Argentina have its origins in a 10% participation that Telefónica has in Telecom Italia via investment holding Telco. This participation grants the Spanish indirect control over a 1.8% stake in Telecom Argentina, which conflicts with the 100% that the Spanish operator holds in Telefónica de Argentina, the other fixed incumbent. Despite Telefónica and Telecom Italia initially choosing to separate their decision-making bodies to avoid problems with local competition authorities, the CNDC considers that their relationship harms local competition.

Telefónica's participation in Telecom Italia is generating problems for both operators not only in South America but also in Europe. The 42% Telefónica owns in Telco—along with several Italian banks and investors—which in turn owns some 22% of Telecom Italia, is raising concerns about the Spanish giant's influence over the Italian incumbent, amid ongoing rumours of a potential merger. The Italian government has denied any talks with Telefónica concerning the future of Telecom Italia, but has repeatedly stated it would be against the incumbent operator falling into foreign hands, saying its fixed-line network in particular must remain Italian (see Italy: 1 February 2010: Italy Says Telecom Italia Fixed Network Must Stay Italian as Telefónica Merger Rumours Continue to Fly). Both operators have a great deal of synergies in their operating structure, investment strategies, etc., not least in their aggressive interests in the emerging South American markets. However, the ongoing regulatory issues and the vehement opposition of the Italian government (itself a key stakeholder in Telecom Italia) mean that a merger is no more likely today than when it was originally touted when Telefónica joined Telco—and there is a general feeling that if it was going to happen, it would have happened by now.