FT: Mr Cattaneo, can we talk about the structure of the company ahead of your IPO? Usually the prospectus for these sorts of companies includes details of recent cost cutting and future restructuring plans.

Flavio Cattaneo: "Within this situation there is a potential value not yet fully expressed, linked with our restructuring plans. We have revenues guaranteed, with 50 per cent from the licence fee and 50 per cent from advertising."There are two big competitors in Italy, which gives a basic balance in the distribution of revenues from advertising. Given these guaranteed revenues, the element of cost cutting plays an important role."It goes without saying that a listing on the stock market will help to establish actions that will focus on costs, which in the past, with exclusive dependence on the state, were difficult to achieve. So what are the cost elements on which we're taking action? Overall programming costs; management related costs; real estate assets that are not related to the core business - we are present in all the regions of Italy, with journalistic offices and also production headquarters. In addition, we do have costs connected to broadcasting planes.

FT: How much do you think Rai can save?

Flavio Cattaneo: "There are 400m of cost efficiencies in the three-year business plan. The project that started two years ago has already led to 250m of cost efficiency. Over the next three years we foresee also a revenue increase. Furthermore, the recovery of licence fee evasion - whose value is estimated 400m per year - will be one of our major objectives."We will divide accounting between what is financed by the public (the licence fee) and commercial, so this will free new commercial revenues.

FT: Most times restructuring involves significant head count reduction. What will be the impact at Rai, and are there more details on where the cuts will come from?

Flavio Cattaneo: "I base myself on the advice given to the advisers not to set up restructuring only on headcount reduction. The number of businesses we are carrying out today needs a consistent number of people, who could be still better allocated and used. Our employees are however much fewer than in other major European public broadcasters." Rai has a number of dis-economies for efficiency by reducing non-core business and supporting business, with a particular focus on programming costs, although we must guarantee a quality standard. We have confidence that the 400m will be recovered."We have also completely re-organised the business, such as in purchasing, for example, where we estimated we will save 60m. Rai used to buy the same product from several different suppliers because the company was divided into so many different entities.

FT: That all sounds reasonable. But hasn't the timing of the IPO been put back?

Flavio Cattaneo: "According to our Shareholder's (the Ministry of Treasury) statement, the listing has been postponed from March to October."

FT: When the prospectus does come out, what do you expect to say about sales and prospects, future licence fee settlements and capital requirements?

Flavio Cattaneo: "On the one hand, the guarantees should be provided for licence fees. In the past they used to be fixed or set on a yearly basis. Now a three-year guarantee should be given."We don't need new capital. We have planned investments for DTT [Digital Terrestrial Television], where we already cover 70 per cent of the country, and we have two new channels at an exploratory stage. We have also reached a number of agreements with administrations to develop interactivity."We definitely have higher costs due to public service obligations. But we also have 50 per cent of our revenues guaranteed by the licence fee."

FT: But why should investors buy stock in Rai when there is already a larger and more profitable media company there in the shape of Mediaset?

Flavio Cattaneo: "We should also consider that Mediaset has already optimised its profitability. We are just at the beginning. If I was buying stock in a company, I would choose one about to grow, rather than one already grown.

FT: But won't the stock market take fright if there is a threat by political parties to take the company back into full state ownership?

Flavio Cattaneo: "I don't think that a democratic country can carry out actions of this extent. They could decide not to list it. It would be very difficult to de-list it.

FT: If the IPO goes ahead as planned, would it be right to assume that the management will be incentivised with stock options.

Flavio Cattaneo: "I think there will be a stock option plan, but they must be approved by the shareholder and the board directors. All Italian companies being listed have clear stock option plans tied to the achievement of economic objectives, to value growth that has to be related to market forces and business efficiency."

FT: This is a very controversial privatisation. How will the company deal with the political pressures and retain management independence?

Flavio Cattaneo: "I believe there will be a separation between management factors and political factors. There will always be a debate about whether a particular party has enough room or not for its information. Parties always feel discriminated against. The important thing is that it should not affect management factors."Discussions with the separate members of the board (private and public) will guarantee separation between politics and business. "The shareholder limit of 1 per cent guarantees independence even further. Looking to the interests of all shareholders is a radical change from dependence on one shareholder.

FT: What about new business areas? Presumably you will have to invest to exploit new growth areas.

Flavio Cattaneo: "In the commercial area there will be more growth opportunities, including international growth. The business plan does not prevent us from owning other broadcasters or tie-ups with telecom companies for convergence."The industrial area is completely liberalized and that where we foresee the largest revenue growth. In addition to advertising-related revenues, we have never done merchandising - unlike Mediaset. Therefore we have the possibility to increase revenue. We can produce programmes and sell those programmes internationally."Since it's not indebted, the company can invest in businesses that can increase both profitability and revenue.

FT: At the same time you will have to defend your core business, which is under attack from two sides: Sky Italia in pay TV and Mediaset in terrestrial broadcasting. What are the competitive issues there?

Flavio Cattaneo: "Audience share in 2004 for prime time, which is the most important segment, showed a significant supremacy of our results versus Mediaset. Over the last year, the effect of Sky was mainly on Mediaset in terms of audience share, because it competed in areas where Mediaset used to be stronger."When DTT has more channels, we can better segment our offering. We think it's more difficult than ever for satellite pay-TV like Sky. It will be tough for them in Italy in future because the free offering is very good quality. "With pay per view through DTT we could offer some products. We could offer free and pay per view offering. We asked for authorization last year for pay per view, which we have been given. It could be a completely new offering. It will not be the main core business, but it will be a strong complementary service."We have a strong film library and we are the only broadcaster having regional activities that we can develop. But we should never do things where there is no gain, or where we go back to the past.

FT: But the company has had some high profile management departures. How do you ensure stability there while you pursue all these other things?

Flavio Cattaneo: "Each time Rai is required to pass a test, we pass the test - and then we are set a new test. When we reorganised the company, I defined the responsibility for people directly reporting to the head of the company. That's me. Privatisation will also guarantee management stability, provided management keeps to its promises and it doesn't make promises it can't keep.

FT: As you take this company forward, are you bencharking against broadcasters in other countries. Is M6 of France with all its merchandising the way to go or do you favour the sort of model at Antena 3 in Spain?

Flavio Cattaneo: "Then the models of Antena 3 and French model are very interesting. Radio also has important growth opportunities. We have three national channels and four that are public service and 11 satellite channels. On the one hand we look at benchmarks, but we have to create our own model because of the different growth opportunities that we have."I cannot give judgments on other people. To do that you need to be familiar with the internal situations of those companies. I try to do what I can to the best of my ability, to make as few mistakes as possible. It's like a tennis game: the winner is not always the best player, but the one who makes fewest mistakes. And the final judgement always comes from facts.

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