Telecom Italia delays earnings report due to money-laundering investigation of unit

By AP
Thursday, February 25, 2010

Telecom Italia delays earnings report amid probe

MILAN — A wide-ranging investigation into an alleged euro2 billion ($2.7 billion) money-laundering ring involving two Italian Internet and phone companies has raised concerns about the stability of the Italian telecommunications industry.

Telecom Italia announced Thursday it was postponing approval of 2009 annual results amid the investigation of its Sparkle unit, while Fastweb founder Antonio Scaglia was expected to arrive back in Italy later in the day for questioning.

Both companies and Scaglia himself have denied any wrongdoing. Telecom Italia and Fastweb both say the were the victims of a criminal organization, not the actors.

Organized crime prosecutors in Rome on Monday issued arrest warrants for some 56 suspects, including Scaglia, as part of a crackdown on an international money-laundering ring that allegedly used ghost companies to carry out fake transactions between 2003 and 2007. They are also accused of tax evasion.

Telecom Italian CEO Franco Bernabe acknowledged the “illegal actions of its managers” in a conference call with analysts. He said the then-chairman of the board of directors and the then-managing director of Sparkle were placed under investigation in 2006. They have since left the company. However, he also said that “current managers” are under investigation.

Bernabe also said Sparkle terminated its relationship in 2007 with two suppliers — I-Globe and Planetarium — whose managers were targeted in the probe.

The investigations were hitting both of operators’ stock prices, with Telecom Italia closing down 3.1 percent at euro1.05 and Fastweb closing down 9 percent to euro13.81 in Milan trading Thursday.

Economic Development Minister Claudio Scajola warned that the investigations risked destabilizing the country’s telecommunications industry.

“Every judicial initiative that brings legality is welcomed. But there is no doubt that it has repercussions,” Scajola told reporters at an economic forum in Rome. “We need a stronger morality, but without destabilizing the system.”

Prosecutors leading the probe have asked a judge to put both Sparkle and Fastweb under the administration of an outside commissioner. A decision is expected next week.

“I believe that would be a crime, a misuse of the law,” Fastweb CEO Stefano Parisi said of the prospect of receivership. He said Fastweb had cooperated fully with authorities for 3 1/2 years, and that the prosecutors’ actions were placing at risk a company that employs 3,500 people and provides services to 1.6 million customers.

Analysts said such a move would be premature since no company has been found guilty of wrongdoing.

“It would destroy so much corporate value that would never be recovered,” said Carlo Alberto Maffe, a telecommunications economist at Bocconi University in Milan. A better solution would be to put a lot of pressure on auditors, he said.

In an extraordinary move, Telecom Italia SpA postponed the approval of its 2009 results, scheduled for release on Friday, in order to accurately evaluate the earnings of Sparkle, a wholesale and retail telecommunications provider. The group’s earnings are now scheduled for release March 25.

The move was necessitated by the fact Telecom had to put euro300 million in escrow, representing the amount of value added tax it is accused of evading.

Fastweb similarly has put euro38 million in an escrow account, amounting to the alleged evasion.

Scaglia, who has been abroad, said in a statement that he is “totally confident about the legitimacy of his actions.” Scaglia sold Fastweb to Swiss Com in 2007 and no longer has a role in the company.

The allegations have sent shockwaves through the telecommunications industry.

“I am still very astonished. If true, it is a very, very bad example of misusing public trust and a bad example of governance. Where were the controllers?” Maffe said.

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