Risk Management Technology in Financial Services

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86 Risk management technology in financial services

It comes therefore as no surprise that Telecom Italia’s decision to sell assets lit

a political storm. Tronchetti Provera resigned after falling out with the government

over his plans to restructure the debt-laden company. Without endorsing either Plan

A or Plan B, equity analysts said that technically Telecom Italia’s woes are no different

to those of other European telecoms.

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Slow growth in mobile telephones,

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Decline in core fixed-line revenues,

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Increasing threat from upstart competitors, and

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Huge debts which have to be serviced at higher interest rates than so far prevailing.

The added bonus for Telecom Italia – and its most important risk – has been gov-

ernment interference. This was further motivated by growing economic nationalism,

as in all ex-telco monopolies in Europe the government still holds a golden share.

The prospect of TIM falling into foreign hands sparked an outcry from the Italian

government both for ‘social’ and for nationalistic reasons.

To cover himself and his political allies from public criticism, Romano Prodi, the

Italian prime minister, went so far as to disclose the minutes of a private meeting

with Tronchetti Provera that took place in July 2006. In doing so, he signalled to

potential buyers of TIM that the government was opposed to any sale.

5

Political analysts did not fail to comment that such mischief is particularly outra-

geous given that Prodi is a former (ineffectual) president of the European Commission,

and he used to be a stern critic of economic nationalism, particularly when ENEL,

Italy’s top power company, wanted to buy France’s Suez (a water and energy com-

pany). But when an Italian company wanted to sell some of its assets to foreign

investors, he changed his stripes.

Where is this political interference leaving Telecom Italia and its peers in the

European Union? Experts suggest that the risk several of these overindebted entities

will not be around for long is present and real. In all likelihood, survivors will be

those telcos that:

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Can get rid of much of their debt,

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Understand how their customers are struggling to combine options in telecommu-

nications services, and

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Come up with solution selling rather than just gimmicks.

The losers will be those telcos that have fortified themselves in their strongholds,

are protected the wrong way by their governments, have put too much energy into

delaying unavoidable changes and continue being burdened by unbearable debt. One

thing that will become clear in the coming years is that the old, protected telcos’ way

of living will not repeat itself.

5.4 Ford and General Motors. Management risk

Telecom Italia has been (unwisely) overburdened with debt, but even so as the case

study in section 5.3 has shown, the salient problem behind business failures is not