There is growing nervousness that Rome, whose approval is crucial, could put a brake on the mammoth merger plan announced on Thursday between the two former telephone monopolies.

The Italian government strongly reiterated its conditions for the merger: a commitment from Bonn to privatise Deutsche Telekom, which is 72 per cent state-owned, and assurances that the companies would be equal partners in the group.

"Becoming the world's second-largest telecoms company means having more capacity for profit. This can only be a good thing," Italian Communications Minister Salvatore Cardinale said.

"However there are conditions -- parity and privatisation (of Deutsche Telekom) for which there must be clear agreements and unambiguous conduct," he added.

Finance Minister VincenzoVisco was more direct. "It would be unacceptable and inconceivable for Telecom to be bought by a German state company," he said.

Last weekend he said the crux of the problem was ensuring Deutsche Telekom's majority stakeholders would not interfere in management.

Once Rome's two conditions are fulfilled, the Italian government -- which holds 3.4 per cent of Telecom and retains a so-called "golden share" that allows it to veto the company's strategic decisions -- would step aside.

The ministers' comments seemed to confirm earlier suggestions that Italy had not been convinced by a letter sent by German Finance Minister Hans Eichel to Italian Treasury Minister Carlo Azeglio Ciampi earlier this week.

But Bonn said there was no reason for concern and that the letter had given assurances that Deutsche Telekom would be privatised.

"We gave signals in the letter to...Ciampi which made it clear that their (the Italian government's) reservations are without basis," a German finance ministry spokesmansaid.

Deutsche Telekom, Europe's largest telecoms company, also played down suggestions that politics would thwart its marriage with Telecom -- which would create the world's biggest telecom firm in market value and number of phone lines.

"We expect that a constructive solution can be found," a Deutsche Telekom spokesman said.

The merged company -- which would have a combined market value of $173 billion, more than 100 million customers and 33 million mobile phone subscribers worldwide -- would give Telekom shareholders a 56 percent stake.

The German government would own about 40 percent of the merged company.

But analysts noted that despite the majority stake, Bonn allows Deutsche Telekom to operate as a commercial operator, free of direct political influence.

"The Italian government should ask itself whether its golden share is more of a hurdle than the German government's 72 per cent," said Ralf Hallman at Bankgesellschaft Berlin.

As well as needing a green light from the Italian government,the alliance also depends also on Telecom Italia shareholders and European and US regulators.

The merger, which would be executed via a share swap, has also failed to halt Olivetti's $65 billion cash and paper offer for Telecom Italia. Olivetti's prospectus was cleared by the Italian bourse watchdog on Thursday evening.

Looking at ordinary shares alone, the value of the offer for Telecom Italia shares implied by Deutsche Telekom's effective three-for-one share swap has fallen since the deal was announced from 12 euros to 11.73 euros -- not far from Olivetti's 11.5 euros offer.