EU-Mediaset Media Law

The European Commission dealt a blow to Silvio Berlusconi's Mediaset television empire on Wednesday, when it took a first step towards suing Italy for a media law passed by the former prime minister's government.

The EU executive said it had sent a formal letter to Italy's fledgling centre-left administration, which ousted Berlusconi from power in April, saying it believed the media law could stifle competition in nascent digital terrestrial broadcasting.

It said the law could unfairly favour Italy's existing dominant broadcasters - Berlusconi family-controlled Mediaset and state television RAI - which carve up nearly 90 percent of Italy's television audience between them.

The EU executive said in a statement it had sent formal notice to the Italian government, which now has two months to reply to the Commission's concerns. If the reply is *****isfactory, Italy could face court and ultimately a fine.

"The Commission is concerned that Italian legislation may indeed preclude operators which are not active in analogue transmissions from experimenting with digital transmissions and from creating their own digital networks," the statement said.

The notice lends support to Prime Minister Romano Prodi, who has set the overhaul of Berlusconi's media reform as a top priority.

The so-called Gasparri media deregulation was among the most contentious of those passed during Berlusconi's five years as prime minister. Critics said it favoured the media tycoon's business empire by removing competition limits and allowing Mediaset to expand rapidly into digital terrestrial TV.

A first draft of the law was rejected by Italian President Carlo Azeglio Ciampi, who said it stifled competition. Berlusconi later pushed it into law with a confidence vote.

Communications Minister P***o Gentiloni said in a statement he would respond to the EU within the two-month timeframe, adding he already aimed to revise the media law to allow "more pluralism and more competition".

He took his first step at dismantling the reform last week by announcing a delay in the switch over to digital terrestrial television until 2012 from 2006, giving new entrants more time to adapt to the technology and enter the market.

Shares in Mediaset, Italy's largest private broadcaster, were unchanged near two-year lows on continued market expectations that the broadcaster could suffer from less favourable conditions with Berlusconi out of power.

The network has invested 1.6 billion euros ($2 billion) in digital terrestrial television and has bet a chunk of its future revenues on the new technology, which allows the creation of more channels and allows features such as interactivity.

The EU said the media law allows existing broadcasters to acquire more frequencies for digital experimentation than they need for broadcasting their programmes in analogue and digital.

It also allows broadcasters such as Mediaset, RAI and Telecom Italia Media to keep control over frequencies and networks for analogue transmissions even after analogue is switched off.