UPDATE 2-Brazil sets restrictions on Telefonica bid for GVT

* Anatel says GVT can be bought by Telefonica, Vivendi

* Telefonica must keep GVT autonomous, preserve brand

* Vivendi would face no restrictions

(Adds comments, competition)

By Fernando Exman and Guillermo Parra-Bernal

BRASILIA, Nov 12 (Reuters) - Brazilian telecoms watchdog Anatel ruled on Thursday that Spain's Telefonica (TEF.MC) can proceed with plans to take over local telecommunications company GVT (GVTT3.SA) under a series of restrictions.

Anatel, as the Brasilia-based regulatory agency is known, also ruled that GVT can be bought by French media group Vivendi (VIV.PA) and said that bid would face no regulatory hurdles. Vivendi has yet to formalize its offer, even after having disclosed a $3 billion friendly approach in September.

But if Telefonica wins, its takeover can only proceed if it guarantees GVT will remain financially, commercially and operationally autonomous, Anatel president Ronaldo Sardenberg said at a news conference in Brasilia.

Telefonica would have to keep GVT independent financially and preserve the GVT brand for at least five years, he said.

The decision paves the way for one of the largest deals in the nation's industry in years. Telefonica's unsolicited offer, which was improved once to trump any other contender, values GVT at about $3.9 billion.

Rivals in Brazil's burgeoning telecoms market see control of GVT as key to expanding into high-quality broadband services and accessing markets that the largest telephone companies have tapped timidly, analysts said.

"The decision was uncompromising in terms of fostering competition, which obviously favors Telefonica and casts doubts over the promotion of free competition," said former telecommunications minister Juarez Quadros in a telephone interview from Brasilia.

Federal prosecutors in Sao Paulo state, the Spanish company's home market in Brazil, opened hearings this week through Nov. 17 to allow consumers to object to the GVT purchase. Telefonica operates in Sao Paulo through its Telesp (TLPP4.SA) unit.

Cade, the government's antitrust agency, might also raise some concerns relative to competition, Quadros said, without elaborating.

GVT FOCUS

GVT's focus on high-usage and high-margin customers and its telecoms network of more than 15,000 kilometers (10,000 miles) have long been seen as attractive to bigger rivals eager to expand their reach in the country.

Telefonica's tender auction to buy out at least 51 percent of GVT was scheduled for Nov. 19. Company executives said on Oct. 9 they expected to win Anatel's approval for the bid ahead of the offer.

Both Telefonica and Vivendi declined to comment on the ruling. GVT will not comment on the ruling, a spokeswoman said. (Reporting by Fernando Exman and Guillermo Parra-Bernal in Sao Paulo; editing by Andre Grenon)