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UPDATE 2-Italy drafts measures to curb Vivendi's position in media and telecoms

* Regulator could act to end illegitimate positions

* Government readies wider reforms to protect media plurality (Adds source, detail and background)

ROME/MILAN, Nov 6 (Reuters) - Italy is readying measures that could temporarily prevent France’s Vivendi from strengthening its position in the country’s media and telecoms sectors, two sources told Reuters on Friday.

Vivendi is the top investor in Italy’s biggest phone group, Telecom Italia, with a 24% stake and also holds 29% of Mediaset, the country’s largest commercial broadcaster.

The government has drafted a law that would require Italy’s communications watchdog to investigate for up to six months companies that operate - both directly or through other entities - in the telecoms and media sectors, a draft seen by Reuters shows.

The watchdog would check whether the companies are in a position to harm media plurality by looking at total revenue, entry barriers and the level of competition in those markets, the document shows.

The regulator would have the power to end positions that are deemed illegitimate.

The move comes after the European Union’s top court in September ruled that an Italian law setting market share thresholds to prevent excessive power concentration in telecoms and media was against EU rules.

That ruling has strengthened Vivendi’s hand in its long-running dispute with Mediaset, the broadcaster 44% owned by former Italian Prime Minister Silvio Berlusconi.

The two groups have resumed discussions after the EU court verdict but have so far failed to reach a compromise, several sources familiar with the matter said.

The verdict could help Vivendi to regain voting rights for its full Mediaset stake, which had been partly frozen because of the Italian law that was challenged by the EU court.

The EU ruling, which could also allow Vivendi to raise its Mediaset stake, has prompted Rome to consider a wider overhaul of current laws protecting media plurality.

The draft bill would buy time until the broader reform is in place.

The government aims to pass the stop-gap measure before a court on Dec. 16 hears Vivendi’s request to scrap restrictions on its Mediaset voting rights, one of the sources said.

Both Mediaset and Vivendi declined to comment.

Reporting by Giuseppe Fonte and Elvira Pollina Editing by David Goodman and Valentina Za