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Telecom Italia has drawn interest from rival Iliad

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Govt open to M&A deals with industrial rationale

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Italy's telecoms market seen ripe for consolidation

(Adds junior minister comments in paragraph 7)

MILAN, Feb 19 (Reuters) - State-backed Poste Italiane

is ready to increase its recently acquired stake in

Telecom Italia (TIM), three sources said, in a move

that would strengthen its position in any potential M&A deal

involving the phone group.

The financial conglomerate led by former JPMorgan banker

Matteo Del Fante said on Saturday it was replacing state lender

CDP as a leading TIM shareholder by taking CDP's 9.8% stake.

After moving swiftly to secure the stake, Poste is assessing

all potential options and has not yet taken any decision on

future moves, the sources said.

Poste, which offers mobile phone services through its Poste

Mobile unit but doesn't own its own network, declined to

comment. It will present its strategy update on Friday.

The stake purchase comes ahead of expected consolidation in

Italy's telecoms sector, where price competition has been

eroding profit margins for years, making it hard for firms to

sustain the necessary investments.

The slimmed-down TIM has already drawn M&A interest.

Representatives of rival French telecoms firm Iliad and

private equity firm CVC approached Italian government officials

about their respective plans for TIM not long before Poste's

decision to step in, sources have previously said.

The government has special vetting powers on TIM and must

authorise any purchase of a stake exceeding 3%.

Having putting on hold any consideration of approaches for

TIM before Poste's arrival, Rome is not ruling out a tie-up

between Iliad and TIM, Treasury Junior Minister Federico Freni

said over the weekend, adding any deal should have an industrial

rationale.

Any deal involving TIM would concern the entire company

because the government opposes separating its consumer and

corporate businesses, one of the first three sources, and a

fourth person, said.

Poste's investment comes after TIM last year stabilized its

finances by cutting debt through the sale of its prized landline

grid to a consortium led by U.S. fund KKR, under a

government-backed plan.

Poste is ready to ready to enter into discussions with all

relevant stakeholders, one of the sources added.

TIM's main investor, French media group Vivendi, is

open to selling its 24% stake after failing to halt TIM's

landline grid sale. It is refusing to engage with TIM CEO Pietro

Labriola.

By upping its holding Poste would be able to ensure a

significant state-sector presence in TIM's capital even after

any tie-ups.

In announcing its investment in TIM on Saturday, Poste said

the operation was aimed at "creating synergies between the

companies and favouring, with all the players involved, the

consolidation of the telecommunications market in Italy".