Italy Boots Out Foreign Media.

Leave all hopes (of entering Italy's telecommunication industry) behind, you foreigners. Sounds like a verse from Dante's Inferno for the non-Italians unable to circumvent the roadblocks guarding Italy's telecommunication and media companies.

As soon as Spain's Telefonica Media expressed interest in buying two TV networks from money-losing TeleMonteCarlo (TMC), Italians erected a protective barrier around the company. And that wasn't a first.

Germany's Deutsche Telekom was not even allowed to bid for Telecom Italia, and it was gently eased out of WIND (an Italian telco formed in conjunction with Italian electric company ENEL). Rete Mia was refused a license due to its partly-foreign ownership. And Rupert Murdoch has been repeatedly stomped by the continental "Boot" -- although, by default, he managed to acquire 50 percent of Stream, a pay-TV cable and satellite service.

The only foreign TV entity in Italy is Tele Piu, the pay-TV service which belongs to France's Vivendi. But both Tele Piu and Stream are losing money and Tele Piu will soon be forced to abandon its terrestrial frequencies (for Tele Piu Nero and Tele Piu Bianco) and move completely onto satellite.

Vivendi's grip on Tele Piu is an "authorization" granted by a center-left government coalition but, with the possible victory of the center-right in future elections, Vivendi's hold is expected to weaken. Incidentally, the leader of the center-right coalition is Silvio Berlusconi, founder of Tele Piu who, when forced to sell it, chose not to keep a minority stake. Berlusconi is also the founder of the French network La Cinq, which was forced to shut down in order to accommodate the TV frequency needs of Vivendi's Canal Plus.

As it stands, Telecom Italia (Italy's largest phone company) now owns the half of Stream not held by Murdoch and, through publishing company SEAT, 75 percent of TMC. This is provoking loud protests from the Berlusconi camp, which maintains that it is illegal for a phone company to enter television and views the left-leaning Telecom Italia as a formidable business competitor and political foe.

However, just as the FCC tolerates monopolistic practices of telcos in hopes of stimulating cable-TV competition, the Italian regulatory agencies are closing both eyes in order to create greater TV competition. Unfortunately, it just so happens that the Italian government, which controls the public radio-TV service RAI, also has "golden" (vetoing) shares in Telecom Italia and, therefore, indirect control of TMC. (Not that TMC operated without any government assistance before. Indeed, its $250 million in losses spanning the past five years were covered by Banca di Roma, a state-owned bank.)

The government influence was strongly felt when Telecom Italia's former management was forced to turn down a cash-rich Deutsche Telekom bid. Instead, they were instructed to accept a leveraged buyout by Olivetti, an Italian company controlled by Roberto Colaninno, an accountant favored by the center-left government. In order to acquire Telecom Italia, Olivetti accumulated debts of over $35 billion.

Three developments complicated the situation more:

1) The center-left political coalition is toying with the idea of privatizing RAI in order to protect it from the grasp of Berlusconi in the event of an election win. (Through Fininvest, Berlusconi controls Mediaset's three TV networks and Mondadori, a large print-media group.)

2) The center-left coalition is pressing for Berlusconi to:

a) Sell his media empire if he were to become Prime Minister,

b) Keep his TV networks but abandon active political life, or

c) Put all his media proprieties into a blind trust.

3) The government is at its wit's end trying to jump-start its digital TV process. (The four frequencies that the government allocated for experimental digital-TV transmission are occupied.) Meanwhile, the government is forcing digital-TV operators Stream and Tele Piu to adopt a universal set-top box that can be used to convert digital TV signals into analog. So far, both companies are resisting the mandate.

Also being ignored are government orders to send Mediaset's Rete 4 to satellite and a quest to recoup the frequencies currently used by stations that have lost their TV licenses. This process is important in order to allocate terrestrial frequencies for the digital transition to be finalized by 2006. At the moment, about 1,100 frequencies are necessary for a TV network to cover the entire country. In Italy, there are 14 national networks and 600 local TV stations that are not network-affiliated.

Returning to the first issue, the center-left cannot privatize RAI because the higher advertising limits would siphon revenues necessary for TMC to become the "Third Pole" so much desired by the center-left. (Up until now, TMC has not been a factor on the Italian TV landscape.)

Number two, Berlusconi cannot lose control of his media empire because it is his only weapon against rivals who, like Berlusconi, use their media to spread propaganda.

So, one can safely assume that the status quo will, once again, prevail. Author of "The Leopard," Giuseppe Tomasi, prince of Lampedusa, wrote back in the 1950s that "for things to stay the same, things have to change." It is possible that Hollywood will soon have to release a sequel to Luchino Visconti's 1963 film version, which starred Burt Lancaster as a Sicilian prince. His contemporary equivalent could be the Sardinian Renato Soru, head-honcho at the Internet company Tiscali.

More media companies are taking advantage of the stock market while digital multimedia approaches. Mondo TV, producer and distributor of animated programs, was able to successfully raise money through an IPO in the Italian New Market (see related story on page 66). Giampaolo Sodano's Eagle Pictures, a producer and distributor of film and TV programming, is also on track to go public soon.

Finally, the Authority for Telecommunications has issued "White Papers" mapping out Italy's progress toward digital television.