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UPDATE 6-T.Italia eyes asset sales of nearly $4 bln, cuts jobs

* To shed non-core assets worth nearly $4 bln

* To cut further 5 percent of its workforce

* Still intends to grow in Brazil, keep fixed-line network

* Reiterates no plans for capital increase

(Adds comments on Telefonica, updates shares)

By Georgina Prodhan and Deepa Babington

LONDON/ROME, Dec 3 (Reuters) - Debt-laden Telecom Italia, Europe’s fifth-biggest telecoms provider, will shed assets worth nearly $4 billion and cut another 5 percent of its workforce in a bid to slash borrowings and costs amid a weak economy.

The company dismissed reports it could sell its fixed-line network or Brazil unit -- its growth engine in recent years -- and plans to chip away at costs and investments to pare its 37 billion euros ($47 billion) of debts.

Telecom Italia TLIT.MI said 2009 revenue would be in line with 2008 -- lower than the 1 to 2 percent growth seen under an earlier plan -- but raised its forecast for revenue growth over the three-year period to above 2 percent annually.

It also confirmed its 2008 forecasts and said it had seen signs of improvement in the company’s operations over the past six months that are expected to carry over into the next year.

Analysts welcomed the stable near-term outlook and bullish long-term forecasts, but fretted they may be unduly optimistic.

“We do not expect investors to believe in these aggressive targets, but estimates look likely to be increased rather than cut for the first time ever after a Telecom Italia investor day,” Deutsche Bank analysts told clients, while JP Morgan analysts said the 2011 targets appeared to be a “stretch”.

Other analysts were disappointed that CEO Franco Bernabe -- who has championed a belt-tightening strategy since taking the reins a year ago -- declined to discuss whether the company would cut its dividend further.

Telecom shares, which have bounced from an 11-year low of 0.715 euros set in October, were down 2.5 percent at 1.02 euros by 1311 GMT, underperforming a 0.6 percent-stronger European telecoms index .SXKP.

Telecom Italia’s five-year credit default swaps tightened by nearly 20 basis points to 422.50 basis points, according to Markit data.

MORE BELT TIGHTENING

“We will be concentrating on Italy and Brazil and I think that is more than enough for the next two or three years,” Bernabe told analysts in London, saying the company had no plans to pursue acquisitions in new markets.

But Telecom's key investor Telefonica TEF.MC also operates in Brazil and analysts have said the Spanish company could be an eventual buyer of the unit over the long term.

Telecom Italia will also expand in Argentina next year by raising its stake in Sofora, which controls Telecom Argentina.

Bernabe dismissed the idea that Telefonica’s stake could lead to a conflict of interests in Brazil.

“We have two members of the board that are executives of Telefonica, but when they sit on Telecom Italia’s board they are defending the interests of Telecom Italia,” he said.

Globally, non-core assets worth up to 3 billion euros will be shed, with Telecom Italia's European broadband, Sparkle, and Cuba units as well as bits of the TI Media TCM.MI unit among those being considered.

Telefonica and Vodafone Group Plc VOD.L could be logical buyers of Telecom Italia's German business if it was sold, Dexia analysts said, noting assets in Germany and Netherlands appeared to fit the non-core category.

Bernabe said the assets would be sold only at the right time to the right buyer and already had some expressions of interest.

He reiterated there were no plans to tap investors for cash.

Telecom Italia’s cost-cutting plans aim to save 2 billion euros over the next three years, with 40 percent of that coming in 2009. It will cut 4,000 jobs out of its workforce of 80,000, on top of existing plans to cut 5,000 jobs by 2010.

It expects to generate free cash flow of around 22 billion euros over the 2009-2011 period and will cut capital spending to 4.8 billion euros next year from 5.4 billion euros this year.

It also expects to cut its net debt-to-EBITDA ratio to 2.3 by 2011 from around 3 in 2008.

With net debt roughly 3.2 times expected 2008 EBITDA, Telecom Italia is the most-leveraged company in the DJ Stoxx telecoms index .SXKP, Reuters Estimates data shows. The index average is a net debt to EBITDA ratio of 2.0. (Additional reporting by Jane Baird in London, Ian Simpson and Niclas Mika; Editing by David Cowell and Hans Peters)

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