Telecom Italia may drop network spin-off plan-sources

* Decision could be taken by board on Nov. 7 - sources

* Italy's PM expected to meet head of top investor Telefonica-media

MILAN, Oct (KOSDAQ: 039200.KQ - news) 22 (Reuters) - Telecom Italia (Milan: TIT.MI - news) is set to shelve a plan to separate its domestic fixed-line phone network while key shareholder Telefonica decides whether or not to increase its voting stake, people familiar with the matter said.

Last month Telefonica reached an agreement allowing it from next year to gradually take over Telco, the investment vehicle for a consortium of Italian financial companies and Telefonica which holds a 22.4 percent controlling stake in Telecom Italia.

"It is not a mystery that Telefonica is against selling part of the network. The issue will remain on hold until the issue of Telefonica's stake in Telecom Italia is resolved," one of the sources said.

The spin-off project envisages putting the network assets, worth an estimated 13-15 billion euros ($17.8-20.5 billion) into a separate company with a view to selling a minority stake in it to state-backed fund Cassa Depositi e Prestiti (CDP).

The board of Telecom Italia approved the separation plan in May, a move that could free up resources to cut its more than 28 billion euros of debt and fund investments.

But now management intends to propose at a Nov. 7 board meeting that the plan be dropped, one of the sources said. On that day board directors are expected to discuss a new business plan and approve the company's quarterly data.

Another source said Telecom Italia could opt instead to put the network assets in a separate division, a model adopted by British Telecom (LSE: BT-A.L - news) with its network unit Openreach.

Telecom Italia did not respond to a request for comment.

The possibility that Telecom Italia could review plans regarding the network had already been indicated two weeks ago by the company's new chief executive Marco Patuano during a meeting with trade unions.

Meanwhile, reports in the Italian press said Telefonica's chairman Cesar Alierta could meet Italy's Prime Minister Enrico Letta shortly to discuss the situation.

When Telecom Italia's board approved the spin-off plan in May, the two representatives for the Spanish group abstained.

Shares in Telecom Italia last traded before the close on Tuesday down 1.2 percent at 0.7260 euros.