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MILAN/PARIS (Reuters) - Telecom Italia's top shareholder Vivendi has asked the Italian firm's CEO to ease up in a row with Rome that threatens a breakdown in relations between the former state monopoly and government over the rollout of ultrafast broadband, sources close to the matter said.
Flavio Cattaneo took over as chief executive at Telecom Italia (TIM) a little more than a year ago, earning praise from France's Vivendi and other investors for cutting costs at the heavily indebted firm.
But in recent weeks Cattaneo has engaged in a heated exchange with Italian Industry Minister Carlo Calenda and other government officials over the ultrafast broadband rollout across Italy, ruffling feathers at Vivendi.
"There is a problem, a real one," a source close to the matter told Reuters. "Either TIM continues with Cattaneo, but in a different way, or it will have to be someone else."
The source said discussions were ongoing to figure out the best solution.
Several managers at Vivendi, including CEO Arnaud de Puyfontaine, told Cattaneo to soften his tone, stressing it was Vivendi, the top investor with a 24 percent stake, that was driving policy at the Italian firm, another person added.
"Flavio is like a thoroughbred that is difficult to tame," the second source said. "He must understand that Vivendi now has a say on every subject."
TIM strongly denied any tension between its CEO and Vivendi. The French media giant also denied any tension with Cattaneo.
The 54-year old manager was appointed last year after his predecessor resigned over strategy clashes with Vivendi.
The French firm backed Cattaneo's promotion to CEO from board member, but "that does not give him a blank check", one of the people said.
TIM has been at loggerheads with Rome over rolling out superfast Internet in so-called non-economically viable areas.
The government says TIM undermined the state tender process by going back on its word not to invest in broadband in the rural and sparsely populated areas.
In a parliamentary hearing last week, Cattaneo said TIM would not be involved in the tenders because of the way the government handled the process.
"If they are already constructed in an ad hoc way, there's no point wasting time," the CEO said in comments that the industry minister called "serious and unacceptable".
The minister also said he would meet Cattaneo to discuss the issue, although sources said no date had been set.
This week, Italy's antitrust watchdog launched an inquiry to see if TIM had tried to obstruct the tender process.
Souring relations between TIM and Rome took a turn for the worse last year when the government, keen to bring ultrafast Internet to all Italians to boost growth, drafted in state-controlled utility Enel to help with the broadband rollout after claiming TIM was dragging its feet.
TIM's decision not to invest in areas where it said it could not guarantee a return on its investment forced Rome to step in with state subsidised tenders.
But in March TIM said it would invest its own money in some of those areas, arguing the market had changed. This shift angered Rome, which claimed it undermined the state tenders.
Vivendi, which plans to use Italy to build a southern European media empire, has supported TIM's acceleration of the broadband rollout. It has also backed aggressive cost cutting.
But the French, already under scrutiny for their growing influence over Italy Inc, do not want to antagonise the government any further, several sources said.
The group, led by tycoon Vincent Bollore, is also aware of growing political pressure to put TIM's copper network - a key source of revenue - back into state hands.
"Cattaneo has an A side that Vivendi likes and a B one that Vivendi likes less," one of the people said. "Vivendi is getting tired of having to clarify things with him so frequently ... now Vivendi wants action, not words."
Other investors remain on the fence for now, saying Cattaneo has been the driver behind TIM's turnaround.
"We like Cattaneo who's been crucial to getting TIM's costs in order and finally kick-starting the turnaround," said Tommaso Iaquinta, the CEO of New York-based Once Capital Management.
"Obviously we are watching how the fallout with the government unfolds and whether it will impact TIM."
Additional reporting by Agnieszka Flak, Danilo Masoni and Paola Arosio; Writing by Agnieszka Flak; Editing by Edmund Blair