Vodafone walks away from Tiscali auction: source

A visitor walks in front of the Vodafone stand during the 3GSM World Congress at the Feria of Barcelona, in central Barcelona February 12, 2007.

LONDON (Reuters) - Britain's Vodafone Group Plc has pulled out of the auction for Italian broadband provider Tiscali SpA, a source familiar with the matter told Reuters on Thursday.

The news, confirmed a Financial Times report, sent shares in the Italian group down as much as 12.9 percent. They traded down 3.5 percent at 2,1675 euros by 6:37 a.m. EDT.

Vodafone had been seen as the most likely buyer for Tiscali as it could acquire both the Italian and British divisions to combine them with existing assets.

The report said Britain's BSkyB and Carphone Warehouse, Italy's Wind and Swisscom were all still interested in a Tiscali deal.

Both Vodafone and Tiscali declined to comment on the report.

"We do not comment on the details of the process," a Tiscali spokeswoman said. "What I can say is no decision has been taken yet; all is open, and Tiscali will decide by the end of the month."

Both BSkyB and Carphone had previously said they would look at the British unit.

Analysts noted that the auction did appear to be dragging on, but said Tiscali was looking to sell at a time of tight credit markets, increasing pressure on consumer spending and slowing broadband growth.

A source close to the matter previously told Reuters that Vodafone made an initial non-binding bid for both the Italian and British divisions of Tiscali.

"It is something of a relief to us that Vodafone has pulled out, apparently due to disagreements on price," Nomura analyst Martin Mabbutt said in a note to clients.

"It had been looking for some time that the price for Tiscali seemed very high in relation to the prospects companies were facing in the market with higher costs and slowing growth.

"Judging from comments made by various of these parties in recent weeks, the price for the separate assets is likely to be significantly lower than as a package.

"Scale is critical in the broadband business, and without it we see every prospect of a war of attrition in the broadband markets, particularly in the UK."

(Additional reporting by Mathias Wildt in Milan; Editing by Louise Ireland)