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ITALIAN DIGITAL ALLIANCE IN DOUBT RAI and Telecom Italia Upheavals Play Havoc with Negotiations

Milan, Italy -- Italy's leading TV companies arelooking ever less likely to roll out the single digital platform that they agreed upon inNovember.

The elements of the agreement were to be finalized by theend of last month, but disagreements over money and roles between the potential partnershave helped to poison the negotiating atmosphere, sources said. In addition, managementupheaval at two of the main players -- public broadcaster RAI and newly privatized telcoTelecom Italia -- have led to constant changes in the cards on the table, sources added.

The main points at issue are who will control the platformand the price that Telepiu will be paid for bringing its 250,000 digital subscribers tothe mix.

"There are people who refuse to tolerate the idea thatthere should be a management, the current one, free to do its job and do it well,"said Michel Thoulouze, managing director of Telepiu and Canal Plus' point man inItaly, in an interview with Milan's daily newspaper, Corriere della Sera.

He also accused a "cross-party grouping in RAI andTelecom" of doing all that it could to sabotage attempts at finalizing the deal.

Telecom declined to comment, saying that the talks weregoing ahead and that a final decision was due imminently. However, some industry sourcespointed to the speed with which Telepiu is boosting its digital subscriber base, notingthat with each day that passes, the price that it can demand for bringing its assets intothe platform rises.

Canal Plus unit Telepiu accused Telecom of acting in badfaith. "Last November, we had the satellite part, and [Telecom Italia unit] Streamhad the cable part," said a Canal Plus source. "Now, it seems that Stream isgoing to use satellite, and that it is slowing or abandoning its commitment to cable. Ifthings have changed, they've changed at Telecom."

Stream was set up by Telecom to manage multimedia on thefiber optic digital cable systems that the telco was building, but Telecom'scommitment to cable has flagged over recent months, as it has turned its interest toasymmetrical digital subscriber line technology.

Meanwhile, the other Italian players involved in theconsortium are still pushing to finalize an agreement. "We've wastedmonths," said Biagio Agnes, president of Vittorio Cecchi Gori's Telemontecarlo,one of the broadcasters involved in the negotiations, when he met the press here lastmonth. "Either we close with Canal Plus by the end of February, or we'll lookfor an alternative, which may be completely Italian," he said at the time.

Agnes was adding his voice to calls by then-managingdirector of Telecom Tomaso Tommasi to reach agreement by the end of February or call thealliance off.

However, Tommasi, along with many of his senior colleaguesat Telecom, lost his job last month, following a boardroom coup. At roughly the same time,the board of RAI resigned, leading to a reshuffle among senior management and muddying thewaters concerning the precise shape of RAI's commitment to its strategy in digital.

In spite of the infighting, the negotiations have made someprogress. "We could sign right now on the parts concerning technology andprogramming," said a Telepiu spokesman. He acknowledged, though, that"We'll have to see about the rest."