Although no formal statement has been made by the Italian government as to where it stands in the bid, in view of the Germans' failure to back down over Italian demands for a larger share in the merged group, the prospect of the Deutsche Telekom bid receiving the support of the Rome government is now "virtually nil".
The Italian government holds a golden share in Telecom Italia and has strong reservations about the fact that Deutsche Telekom is 72 per cent state owned.
Advisors to Olivetti, whose 11.5 euros-a-share offer for the Italian telecoms leviathan closes on Friday, said yesterday: "Nobody here is hoisting the victory flag. But before the talk in Italy was that we had a 50:50 chance of pulling it of. That is now a shade over 50:50. The Deutsche Telekom bid has run into the sand."
There are preliminary indications that Telecom Italia's core shareholders - a group of Italian institutions meant to be supportive of management, whose influence goes much further than their combined 7 per cent shareholding suggests - were preparing to tender their shares for the Olivetti bid.
Telecom Italia said at the weekend that the terms of the Deutsche Telekom merger "are and remain those of April 22 last," quashing investor hopes of a last-minute sweetening of the Telekom bid terms.
A collapse of the Deutsche Telekom bid would be a crushing blow for Ron Sommer, the charismatic chairman of the German telecoms company whose stewardship is now likely to be increasingly called into question. If the bid fails he is likely to turn his attention to One2One, the UK mobile phone company being sold by Cable & Wireless. But even here, given the level of interest already shown by competitors, he is unlikely to get anything like a clear run.
So far Olivetti has received barely 1 per cent acceptances for its offer. However, neither camp expects any firm indication of which way the battle is going before Wednesday. Many large institutions will almost certainly wait until the last minute before deciding which way to jump.
As tension mounted the battle was become increasingly ill-tempered, with Deutsche Telekom's bid threatening to become ensnared in a plethora of legal actions and Telecom Italia talking of invoking technicalities to frustrate Olivetti.
Olivetti's advisers believe it is highly significant that Enel, which is 100 per cent Italian state owned, has been allowed to join France Telecom in suing Deutsche Telekom over Wind, their Italian telecoms joint venture.
Franco Bernabe, the head of Telecom Italia, said yesterday he did not expect Olivetti would get more than 50 per cent of the shares. Olivetti has said it needs 67 per cent of Telecom Italia shares in order to merge with Telecom Italia, but if it gets less than 35 per cent it will walk away.