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Telecom Italia Unions to Fight Cuts as Telefonica Takes Hold

Telefonica SA (TEF)’s agreement to tighten its grip on Telecom Italia SpA has stoked concern among worker representatives that the Spanish carrier will replicate its cost-cutting program in Italy.

Italian labor leaders say Telefonica may eliminate jobs at Telecom Italia after agreeing to acquire control of the company that owns 22.4 percent of the carrier in an 861 million-euro ($1.2 billion) cash-and-stock transaction.

“This is a very dangerous deal because all the issues of Telecom Italia remain, starting from huge debt and the need for new, real investments,” said Michele Azzola, secretary general of Italy’s biggest telecommunications union, Slc-Cgil. The government should call in Telecom Italia shareholders to talk about “avoiding job cuts and also the sale of Tim,” its Brazilian unit, whose market value is over $11 billion.

Spain’s biggest phone company will gradually increase its holding in Telco SpA -- the investment vehicle in Telecom Italia created in 2007 -- to 70 percent from 46 percent. Under the agreement, partners Assicurazioni Generali SpA, Intesa Sanpaolo SpA and Mediobanca SpA will reduce their stakes.

“There is no discussion about Spanish capital or Telefonica, the problem is the level of workers,” Prime Minister Enrico Letta said when asked yesterday if he might block the deal in an interview with Bloomberg Television’s Erik Schatzker. “We want to have the number of workers maintained.”

Photographer: Alessia Pierdomenico/Bloomberg

Telecom Italia employed more than 82,000 workers as of June 30, according to data compiled by Bloomberg. Close

Telecom Italia employed more than 82,000 workers as of June 30, according to data compiled by Bloomberg.

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Photographer: Alessia Pierdomenico/Bloomberg

Telecom Italia employed more than 82,000 workers as of June 30, according to data compiled by Bloomberg.

12,000 Jobs

Telecom Italia employed more than 82,000 workers as of June 30, according to data compiled by Bloomberg. Mario Di Loreto, a former executive at pasta-maker Barilla Holding SpA who took over personnel at Telecom Italia this month, will oversee the reduction of about 2,750 positions, or 5 percent of the Milan-based company’s domestic workforce. Unions agreed to those cuts in March in exchange for the company waiting a year before disposing of any call-center operations.

About 12,000 positions could go if the customer-service unit were outsourced, Azzola said in a phone interview.

Selling assets in Brazil and Argentina would hurt growth, Chief Executive Officer Franco Bernabe told a parliamentary hearing in Rome today, listing the company’s options to boost investments on fiber networks and avoid a downgrade. A capital increase is another option, Bernabe said.

“Market conditions are favorable and there is also lot of liquidity around now,” he said.

‘Blocking Minority’

Bernabe, who said Telecom Italia’s management learned of Telco’s reorganization from press releases, said he will need to secure the support of all Telco shareholders at the Oct. 3 board meeting for any decision on how to proceed, and called them “a blocking minority.”

Telefonica, as Telecom Italia’s direct competitor in Latin America, has a conflict of interest, according to Luigi Zingales, an independent director on Telecom Italia’s board. “The Spanish company may force Telecom Italia to dispose of its precious assets in Brazil and Argentina, valuable to the growth of the company,” he said in a statement today.

Telefonica “may put at risk the employment at Telecom Italia,” Vito Vitale, secretary-general of the Fistel Cisl union, said by phone. “We hope Italy’s government will do its part investing in a potential separated network offsetting Spanish power.”

In the last two years, Telefonica has shaved costs and sold assets to reduce debt. Telefonica began a three-year project in 2011 to cut a fifth of its 35,000-strong Spanish workforce to help cope with economic and competitive pressures. The carrier cut 6 percent of management positions, linking pay and benefits more to productivity.

‘Same Recipe’

As Telefonica’s debt topped 58 billion euros last year, it’s also sold assets around the world, including the Atento call center, Irish business, and stakes in China Unicom Hong Kong Ltd. and its Central American assets. Telecom Italia (TIT), whose debt rating is now on the brink of junk, is considering selling its wireless towers, a person with direct knowledge of the matter said last week.

“Since Telefonica started cutting costs through job cuts and also sold assets to reduce debt more than a year ago, the company is now in a much more stable and healthy position,” said Adrian Zunzunegui, a Kepler Cheuvreux analyst in Madrid. “That same recipe could very well help Telecom Italia to strengthen its balance sheet and be more competitive.”

300,000 Jobs

European carriers will probably cut their workforce by 30 percent -- more than 300,000 jobs -- over the next five years, according to an April statement by UNI Europa ICTS union, which represents telecommunications employees across the bloc.

Still, Italy’s unions will probably push the government to block any major transaction that could trigger job cuts at the Italian phone company.

“Letta’s government should evaluate using the golden share included in the Telecom Italia statute,” Azzola said, referring to a special takeover defense mechanism Italy has for former state-owned companies.

“There are some strategic assets such as the network,” Letta said. “So we will be very, very cautious on that and will follow all the developments because we don’t want to lose on this strategic aspect of the deal.”

Telecom Italia fell 2.2 percent to 58.7 cents at 12:24 p.m. in Milan trading.

Employees’ productivity at the carrier lags behind Sweden’s TeliaSonera AB (TLSN) and Royal KPN NV of the Netherlands. Revenue per worker last year was about 355,000 euros, compared with 433,000 euros for TeliaSonera and 474,000 euros for KPN, according to data compiled by Bloomberg. It beats Orange SA’s 255,000 euros and 250,000 euros for Deutsche Telekom AG.

Telefonica, by selling its call-center unit with more than 150,000 employees, doubled its sales per worker to 468,000 euros in 2012, the data showed.

To contact the reporters on this story: Daniele Lepido in Milan at dlepido1@bloomberg.net; Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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