BT pays pounds 70m for key stake in Berlusconi empire

BT is to take a key strategic stake in Silvio Berlusconi's television empire as part of its plans to expand into the Italian telecommunications market in readiness for liberalisation of the industry.

Together with its joint venture partner in Italy, the banking group BNL, BT is paying pounds 70m for a 2.4 per cent holding in Mediaset, Mr Berlusconi's television holding company. In return Mediaset will take a 30 per cent stake in Albacom, the BT/BNL joint venture expected to apply for a third Italian telecoms licence next year to compete in the domestic market.

Details of the link-up between BT, headed by Sir Iain Vallance, and the business owned by the former Italian Prime Minister are due to be announced today. Last night neither company was formally commenting.

The deal coincides with plans by Mr Berlusconi to raise an estimated $1bn (pounds 662m) by selling down his holding in Mediaset from 72 per cent to under 50 per cent.

It also forms part of BT's increasingly ambitious expansion strategy as it seeks to build up its presence in other European markets and reduce its dependence on the heavily regulated UK market.

BT already has a joint venture with Viag of Germany ready to take advantage of the coming deregulation in the German telecoms market. Albacom, meanwhile, is expected to seek a licence to begin competing with Telecom Italia and Olivetti in Italy next year. News of the expansion in Italy came as BT formally submitted its response to UK regulator Don Cruickshank's new pricing formula with a warning that unless the proposals were modified subtantially they would lead to "a slow failure of quality".

BT executives said Oftel's proposal that price rises be limited to inflation less between 5 and 9 per cent for the next four years, would harm investment, jobs and the growth of competition.

However, BT held out an olive branch by indicating that it might agree to the new price curbs being linked to the issue of the wider powers Mr Cruickshank is seeking to impose on anti-competitive behaviour.

BT said it might be prepared to submit to a tougher regulatory regime if the definition of anti-competitive behaviour was clearly defined and it had the right to appeal against any ruling. But it insisted the proposed price regime, due to take effect from July next year, was too harsh.

Mr Cruickshank is due to present his final proposals at the end of May. If BT refuses to accept them it will be referred to the Monopolies and Mergers Commission for an inquiry lasting up to a year.

The regulator says the new price controls could knock pounds 1.3bn a year from BT's cash flow and lower the average domestic bill by about pounds 50 a year in real terms. BT says it would prevent it from earning an acceptable return on investment and deter other players.