By Elvira Pollina and Gwénaëlle Barzic

Italy's populist government has been pushing for the creation of a single ultrafast broadband operator through a merger of Telecom Italia's (TIM) network with smaller rival Open Fiber.

But squabbling among TIM's major foreign shareholders Vivendi and activist fund Elliott over broadband strategy has so far thwarted the move.

In a statement on Thursday, TIM said its board had unanimously backed the replacement of former CEO Amos Genish with Frank Cadoret, a top executive at Vivend's Canal+ unit.

Italy's biggest phone company said it welcomed the renewed dialogue, adding it hoped it would lead to "a shared and finally stable governance".

Vivendi and Elliott have been trading blows for more than a year over how to revive TIM, saddled with more than 25 billion euros (£22.4 billion) of debt.

But following Vivendi's backtracking on a request to remove five Elliott-backed board members at a shareholder meeting in March, relations between the two have thawed.

"Elliott welcomes the appointment of Mr. Frank Cadoret to the Telecom Italia Board of Directors," an Elliott spokeswoman said, acknowledging a more constructive climate.

State lender Cassa Depositi e Prestiti (CDP), which has become TIM's second-largest shareholder, jointly owns Open Fiber with state-controlled utility Enel and is keen to engineer a single national network.

Sources recently told Reuters CDP's top managers had visited Paris to talk to Vivendi while the French media giant had also met with Elliott executives.

"It's not open warfare anymore," a source close to the matter said.

An end to open hostilities between TIM's top shareholder Vivendi and the third biggest investor Elliott, which currently controls the board, is widely seen as a pre-condition for any agreement on the network issue.

On Thursday, TIM's board also discussed key options aimed at creating a national broadband network, a source familiar with the matter said.

"A final proposal on which option to take will be put before the board on August 1," the source said.

TIM is said to be considering two options - merging its fibre and copper network with Open Fiber or folding its fibre-only broadband unit, Flash Fiber, into its rival.

What to do with TIM's core network has been a bone of contention between Vivendi and Elliott with the French conglomerate eager not to lose control of a strategic asset and the fund ready to spin it off.

Alongside a solution to the network problem, a possible compromise on governance issues could ensue, sources said. That could include giving CDP representation on the board.

Ongoing talks over integrating the two networks could however create a conflict of interest situation for the state lender, one of the sources said.

"There are solutions, however, to this problem," the source said.

(Reporting by Elvira Pollina, Writing by Stephen Jewkes; Editing by Elaine Hardcastle)

By Elvira Pollina and Gwénaëlle Barzic