* Telia chief repeats Spanish unit Yoigo too small
* Vodafone could be interested depending on regulator view
* Telia repeats sees flat sales, profit margins in 2014
* Sees slightly greater risk of slower equipment sales
* Q1 EBITDA ex items 8.3 bln crowns vs forecast 8.4 bln (Recasts with Vodafone comments, adds analyst comment, updates shares)
STOCKHOLM, April 23 (Reuters) - Nordic telecom group TeliaSonera moved closer to the possible sale of its problematic Spanish unit Yoigo on Wednesday, as Vodafone said it might be interested in a bid and Telia restated it was considering the unit's prospects.
Finding a solution for Yoigo, Spain's smallest mobile operator in which Telia has a 76.6 percent stake, is a key part of a strategic review which began when Chief Executive Johan Dennelind took the helm of the Sweden-based group in September.
Announcing Telia's first-quarter results, Dennelind repeated his view that Yoigo - which one analyst estimated could be worth between 1 billion euros ($1.4 billion) and 1.5 billion - was too small and needed to grow its market share of just 7 percent or Telia would have to sell up.
UK-based Vodafone, which last month agreed to buy Spain's largest cable operator Ono for 7.2 billion euros, said it could be interested in Yoigo once it was clear how tough the regulators will be on tie-ups in the sector.
The dominant player in Sweden but undersized in Norway and Denmark, Telia said it aimed to strengthen and develop core operations in the Nordics and Baltics. "We would like to be part of consolidation where it is possible and that is being evaluated across our footprint," Dennelind said.
Some analysts say Telia, which recently made small acquisitions in Denmark and Finland, would likely target Norway and Denmark for further expansion.
"There are three countries that seem reasonable in M&A terms," said Stefan Gauffin, analyst at Nordea. "That's Norway, where (Swedish rival) Tele2 is in play, possibly Denmark which is a four-player market that is in dire need of consolidation. And there is Spain, where Telia is ... likely to make an exit."
Such moves could prove less troublesome that Telia's previous expansion in emerging markets such as Uzbekistan. U.S. authorities are investigating Telia's purchase of a 3G licence in 2007, a deal that forced the group to replace top management and most of its board.
Telia shares slumped to a nine-month low early this month after it said it could not rule out that some of its actions in other Eurasian markets had broken the law. The company made no further comment on the matter on Wednesday.
Telia's renewed look at possible acquisitions and disposals reflects its view that regulators are getting readier to accept consolidation in a tough sector.
Telia has in recent years seen growth in emerging markets and cost cuts roughly offset competition in its core markets, which are mature and where regulators have been until now been loath to allow operators to merge to boost profits.
In Norway, Tele2 has said it is looking at its options after missing out on a spectrum auction, while in Denmark, where Telia is the third-largest player, a mobile price war and cuts to interconnect fees by the Danish regulator have hurt operators.
TeliaSonera tried to sell Yoigo in 2012, but bids from Vodafone and Orange were dismissed as too low.
"A sustainable position (in Spain) is not where we are today and we need to find the path to a sustainable position," the CEO said. "If that's not possible organically, then other measures need to be taken. Long term we need to see Spain as up or out."
Vodafone chief Vittorio Colao said at a meeting in Madrid: "We are obliged to look at everything, although for something like Yoigo we would need the European Commission to make its stance clear on current consolidation deals."
Telia declined to comment on Vodafone's potential interest.
Berenberg analyst Barry Zeitoune said Yoigo could be worth between 1 and 1.5 billion euros to a buyer, assuming its margins could be boosted to 20-30 percent as it became part of a larger player. Yoigo had an EBITDA margin of 7.3 percent in 2013.
Regulators have yet to sign off on Hutchison Whampoa's bid for Telefonica's Irish mobile unit, or Telefonica's bid for KPN's E-Plus unit in Germany, but if they do, that could trigger further consolidation, analysts have said.
Competition, regulatory pressures and a shift from voice services to data have held Telia's net sales roughly flat since 2008, while core income (EBITDA) has fallen in each of the last three years.
Telia stuck by its forecast for flat sales and profit margins in 2014, but flagged risks of slowing revenue from sales of low-margin equipment such as handsets, mainly in Spain.
Net sales in local currencies, excluding acquisitions and disposals, fell 1.8 percent in the first quarter due to lower equipment sales and regulatory impacts, the company said.
The company's core earnings or EBITDA, excluding non-recurring items, reached 8.3 billion crowns ($1.3 billion), versus an average forecast of 8.4 billion in a Reuters poll of analysts and last year's 8.5 billion.
Telia shares were up 1.1 percent at 46.09 crowns by 1506 GMT. ($1 = 6.5855 Swedish Crowns) ($1 = 0.7248 Euros) (Additional reporting by Sven Nordenstam and Olof Swahnberg; Editing by Muralikumar Anantharaman and David Holmes)