Amidst mounting protest over the participation of foreigners in Telecom Italia (TI), AT&T withdrew from discussions toward the acquisition of an interest in controlling TI shareholder Olimpia, explaining: “there are regulatory uncertainties and resulting business issues that preclude our proceeding.” Two weeks ago, AT&T, in partnership with America Movil (AM) of Mexico, entered into exclusive negotiations with Pirelli toward the purchase of a 66.6% combined stake in Olimpia, a holding company with 18% of TI’s ordinary shares that also controls the TI board. (Pirelli, in turn, controls Olimpia with an 80% stake.) Citing the strategic importance of TI to the nation, Italian government officials objected to the arrangement, fearing that the proposed investment by AT&T and AM could result in TI’s falling under foreign control. While stopping short of blocking the sale, Italian Prime Minister Romano Prodi asserted that the proposed transaction would deal a “serious blow” to the country as he expressed hope that “an Italian solution” would be found. (Opposition to the sale within political circles and among TI shareholders is also cited as a factor behind the resignation of TI chairman Guido Rossi earlier this month.) Had it pursued its investment strategy, AT&T might have emerged with a 6% equity stake in TI valued at U.S. $3.2 billion. Although AM is continuing discussions toward the purchase of a 33.3% stake in Olimpia, it remains unclear whether a potential investment by AM or by other interested foreign parties (such as Telefonica of Spain) would face government opposition.