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ROME: The Italian government needs more time to broker a deal between former phone monopoly Telecom Italia and state-controlled utility Enel over plans to create a single ultrafast broadband network, three sources told Reuters.

TIM has been in talks for months over a merger of its last-mile fibre assets with those of smaller rival Open Fiber, controlled by Enel and state lender Cassa Depositi e Prestiti (CDP).

To end the stalemate, Economy Minister Roberto Gualtieri asked the two companies to sign a Memorandum of Understanding (MOU) by the end of July, sources told Reuters.

Enel CEO Francesco Starace met Treasury representatives early on Friday, people close to the matter said, but issues regarding governance and regulation are still clouding the horizon.

TIM and Enel declined to comment.

TIM, which has its own retail business, has said it wants to keep control of any merged business while Starace supports a wholesale-only business not controlled by TIM.

Under a plan the government is studying, the new operator could initially be majority owned by Telecom Italia but would grant equal access to all market players, a person close to the matter told Reuters this week.

"There's still no written agreement ready to be signed by both companies. Talks continue," a source said.

A second source said disagreements within the ruling coalition also played a role.

Rome increased pressure for an agreement after TIM started talks with US private equity fund KKR about selling 40% of its so-called last-mile network, which could become the basis for a single grid.

Gualtieri would like to have a deal before August 4, when TIM's board is scheduled to meet to discuss the binding offer proposed this week by KKR, sources said.

Enel said in June it had received an offer from Infrastructure fund Macquarie for all or part of Enel's 50% stake in Open Fiber. Sources said the offer valued the wholesale operator at almost 8 billion euros ($9.44 billion).

Such a high valuation could complicate a TIM tie-up with Open Fiber since TIM would have to stump up more equity or more assets to hold a majority stake and keep the new division on its books, one of the sources said.