UPDATE 1-Telefonica open to M&A, network-sharing deals in Mexico

BARCELONA Thu Nov 21, 2013 1:05pm EST

BARCELONA Nov 21 (Reuters) - Spanish telecom group Telefonica on Thursday said it is open to mergers, acquisitions and deals to share networks in Mexico, where it lags far behind former monopoly and arch-rival America Movil .

The company, one of Europe's most heavily indebted telecoms operators, this month said it had already met its target to cut debt below 47 billion euros ($62.9 billion) by year-end and had now regained financial firepower.

It has scaled down its operations by selling non-core assets in Europe and Latin America and now aims to focus on developing its business in key markets such as Spain, Germany, Britain, Brazil and Mexico.

"We are very open minded to consolidation in Mexico," said Telefonica Chief Operating Officer Jose Maria Alvarez-Pallete at the Morgan Stanley annual technology, media and telecoms conference in Barcelona.

"Consolidation might happen not just in terms of merging, but also roaming or network sharing," Alvarez-Pallete said. "We remain committed to the Mexican market, one of our top five. We are open to deals or consolidation, since we think it makes sense and the timing is right."

Telefonica currently controls 20 percent of the Mexican mobile market and has been exploring a series of options to challenge America Movil, owned by the world's richest man Carlos Slim, and which has a market share of 70 percent.

It signed roaming agreements with smaller competitors Nextel and Iusacell last year. It is also pushing on with a new strategy to overhaul its operations in Mexico in the hope it will cut its reliance on Brazil.

Telefonica earlier this month backed an overhaul of Telecom Italia's finances in what sources said was a bid to stabilise the company and prepare the sale of its Brazilian unit from the second half of 2014 onwards.

Telefonica Chief Financial Officer Angel Vila said the group was fully supportive of Telecom Italia's new head Marco Patuano and had been impressed by his work since he took the helm of the company six weeks ago.

Patuano's plan includes a 1.3 billion euro mandatory convertible bond, an upgrade of the company's Italian networks to combat fierce competition, and a sale of its Argentina business and mobile towers to cut debt.

"We think the new strategy will create value for Telecom Italia shareholders and we are the biggest one of them," Vila said, adding that Telefonica had no plan to take its indirect stake in Telecom Italia beyond 14 percent, a level which it does not see as a controlling one.

Italian lawmakers recently discussed the possibility of lowering the threshold for obligatory takeovers to 15 percent from 30 percent.

Vila said that even if the Italian partners wanted to exit their investments in Telecom Italia's holding company Telco, the structure of a late September deal between them and Telefonica means that the Spanish group could not be forced to launch a full takeover bid for Telecom Italia.

Vila said if the Italian partners wanted out at a later date, Telefonica could choose whether or not to buy them out. If the Italian partners were to exit and Telefonica does nothing, its indirect stake in Telecom Italia would not go beyond 14 percent.

"We have not put ourself in control position. We cannot see any reason why we could be, in the current situation, required to make an offer on Telecom Italia," Vila said.