UPDATE 1-Bolivia announces takeover of Telecom Italia unit

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LA PAZ, May 1 (Reuters) - Bolivian President Evo Morales decreed on Thursday the nationalization of the country's largest telecommunications company, Entel, a unit of Telecom Italia TLIT.MI.

The government since last year had pushed the company to negotiate terms for a state takeover, and had issued millions of dollars of fines against the telephone operator, saying it had failed to provide quality rural service and invest in expansion.

The news came exactly two years after the leftist president announced his first major reform: the nationalization of the country’s energy industry, including extensive natural gas production.

Morales issued a decree in April 2007 ordering Telecom Italia to sell part or all of its 50 percent stake in Entel to the Bolivian state.

Telecom Italia initially agreed to meet with the Bolivian government to negotiate terms, but talks collapsed when Bolivia refused the company’s request to move the negotiations to another country.

The Italian company said in October it was seeking international arbitration at the World Bank’s International Center for Settlement of Investment Disputes (ICSID), but Bolivia said it was withdrawing from the ICSID saying it always sided with international companies against the government.

Bolivia handed a 50 percent stake in Entel and administrative control to Telecom Italia in the mid 1990s, in exchange for pledges from the Italian company to double Entel’s value by investing $610 million.

The government says the company has invested some $144 million less than agreed. Entel says it invested $720 million to bring the network in line with international standards and pioneered mobile telephony and Internet service in the country.

Entel controls 80 percent share of Bolivia’s long-distance market, and about 70 percent of the mobile phone market.

The government holds 47 percent of Entel and the remainder is in the hands of company workers.

The government has said Entel owes $60 million in unpaid taxes and fines, including $6 million for failing to provide quality service to rural areas and meet expansion targets.

Entel rejected the charges.

Reporting by Carlos Quiroga in La Paz; Writing by Fiona Ortiz, editing by Dave Zimmerman