The European Commission spelled out limits on Wednesday to a government plan to take the national telephone network out of the exclusive control of former state monopoly Telecom Italia.
European Commissioner for Information and Media Viviane Reding told Italian Communications Minister Paolo Gentiloni by phone that such an operation could only be imposed by the national telecoms authority.
Reding reportedly also made it clear that giving ownership of the network to a state-owned company was out of the question.
The Commission "does not view favourably the return of companies to state control, either partial or total," an EC spokesman said later.
The move by Brussels appeared to be partly motivated by fears that the government plan would interfere with negotiations aimed at selling a controlling stake in Telecom to AT&T and America Movil of Mexico.
The centre-left government of Romano Prodi has said that any decisions on Telecom's future will be taken by its board, with no state intervention.
But several government members have also said they would prefer ownership of Telecom to remain in Italian hands, especially the telephone infrastructure which is seen as a national asset. They have called on Italian banks and investors to see whether together they could keep control of the group in Italy.
Amid the tensions over Telecom's future, Gentiloni this week announced plans to make its fixed line telephony network a separate unit, controlled largely by a boosted communications authority.
He did not say exactly how this would happen but indicated an approach used recently in Britain with the telephone network formerly owned and controlled by British Telecom a few years ago.
That method would create an autonomous division within Telecom Italia with a board containing directors mostly chosen by the telecoms authority.
Gentiloni met the head of the authority, Corrado Calabro', on Tuesday to discuss the separation issue, which he said could theoretically be completed within a year.
He said the necessary measures would be included in draft legislation on increased powers for the authority or possibly in another government bill on liberalisations.
According to the minister, the operation would aim to give all telecoms firms equal access to the network and also make it possible for others, apart from Telecom, to invest in it.
An EC spokesman said that Gentiloni and Reding had a "positive and constructive" conversation on the subject on Wednesday morning and that the Italian minister accepted that any action must be "in line with EU regulations".
Italian media reported that the government might use a decree to accelerate the separation process - a prospect which provoked objections from the opposition centre right.
But Deputy Premier Francesco Rutelli denied this on Wednesday, saying: "As far as I know a decree law on the telephone network is not on the agenda".
Industry Minister Pierluigi Bersani did not rule out that measures on the network's effective separation from Telecom might be included in the deregulation bill he has drafted.
Exactly what the legislation will entail remains unclear. Calabro', the authority chief, was expected to deliver detailed suggestions to the Communications ministry later in the week.
The centre-right opposition said that the European Commissioner's telephone call to Gentiloni had been a rap on the knuckles aimed at ensuring the government did take a "protectionist" approach.
"It also served to remind the government that the owners of the network should be talking to the independent authority, not the government," said Forza Italia MP Benedetto Della Vedova.
"It was a warning to the government not to make a mess of the Telecom business," said former EU affairs minister Rocco Buttiglione.
