MILAN (Reuters) - Telecom Italia (TIM) will conclude the network sale only if the financial situation of the services business remaining after the sale is still sustainable.

Telecom has given the U.S. fund KKR an exclusive period until the end of September to negotiate a binding offer for Netco, which includes both TIM's national fixed-line network and the submarine cable unit Sparkle.

The U.S. fund has offered about 23 billion euros taking into account a number of variable elements, according to sources close to the matter.

The sale of the network, the company's backbone asset, is a key part of the CEO's efforts to reshape the former monopolist, which is burdened by debt and intense price competition that has led to a steady erosion of profits over the past decade.

However, the plan has met with resistance from Vivendi, TIM's main shareholder, which has demanded a higher valuation in order to agree to the deal and has raised concerns about the sustainability of the services business that would remain after the network divestment.

TIM will not pursue network negotiations if the price offered is below a "certain threshold" that would allow the company to reduce its 26 billion euro debt, Labriola said.

DEBT CONCERNS

TIM shares are down more than 3.2 percent shortly after 2 p.m.-in a still weak market with the Ftse Mib losing 0.9 percent-after the company reported second-quarter earnings basically in line with expectations, with analysts citing concerns about rising debt.

"The deal will only be finalized if ... the remaining business of [service] remains financially and industrially viable," added Labriola, whose term expires next year.

With 24 percent of the voting rights, Vivendi could thwart any meeting called by TIM shareholders to vote on the deal, which Labriola said could be completed within 12 months.

Speaking to analysts during the conference call after the results, Labriola said he did not want to further postpone the deadline for the binding offer beyond September.

The manager acknowledged that the presence of state-backed entities within KKR's bid would make it easier to obtain the government's green light under the so-called special powers ('golden power') rules used to protect strategic assets.

(Translated by Camilla Borri, editing Stefano Bernabei)