According to four sources familiar with the matter, Telecom Italia SpA's proposed merger with Hutchison Whampoa Ltd has stalled due to disagreements over valuation.

The directors of Telecom Italia would probably decide to halt the merger during their meeting this week. This was after three months of examination regarding collaboration with Hutchison's H3G unit said two of the sources. Telecom Italia executives intend to focus on spinning off the company's fixed line assets. The plan was approved last May by its board still according to sources who asked not to be identified.

Telecom Italia could revisit a wireless merger in the future. However, putting the current plan to merge with Hutchison on hold would mean a lost chance to consolidate in Europe's overcrowded mobile phone industry. Last week, Hutchison agreed to acquire Telefonica SA's local arm for as much as US$1.1 billion.

On the other hand, H3G has a fair valued of Eur1.5 billion. The lack of clarity on how much of the carrier's accumulated losses can be used to offset taxes. This would mean a difference in price by billions of dollars said a person familiar with the matter.