Forget the jab, Telecom Italia is in for some serious surgery. Franco Bernabè, chief executive, on Wednesday ruled out raising capital and instead outlined a plan to cut €2bn in costs and make up to €3bn in disposals by 2011. To boost cash flow and cut its massive debt burden, TI will shed 4,000 jobs on top of 5,000 positions already being eliminated. Non-core businesses, defined as those falling outside Italy and Brazil, will be sold.

Three months ago, a share issue might have been a preferable way to inject cash, but now it would be difficult to secure favourable terms. Also, two of TI’s potential investors – Telefónica, its Spanish rival and biggest shareholder, and a Libyan sovereign wealth fund – have political baggage. Even though it already owns 10 per cent of the company, Telefónica – long mooted as a potential acquirer – has received a hostile reception from Silvio Berlusconi, Italy’s prime minister, who seems intent on keeping control of TI in Italian hands. A passive investment by the Libyans – more palatable to Mr Berlusconi – would have diluted existing shareholders, including Telefónica.

To meet his goal of cutting TI’s debt from 3 times earnings before interest, tax, depreciation and amortisation to a more manageable 2.3 times by 2011, Mr Bernabè will have to secure fair prices for things like TI’s European broadband, business services or Cuban businesses – tricky given that potential buyers are hoarding cash and nursing battered share prices.

Assuming it finds purchasers for these businesses, the end result will be a company that is the dominant telecoms operator in Italy and the top mobile operator in Brazil. Reducing leverage while focusing on markets where TI is already strong should help stabilise the patient. But final relief for TI’s shareholders is unlikely to come until the Italian government warms to the idea of an outright sale.

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