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Telefónica Hears China and Italy Call

César Alierta, chairman of Telefónica, plans to devote more of his time to China and Italy this year after a management reshuffle at Spain's leading telecommunications company.

Analysts said Mr Alierta may seek to increase Telefonica's exposure in China beyond a planned 10 per cent stake in China Netcom, a fixed-line telephone company, if the Beijing government proceeds with a long-awaited restructuring of the country's telecoms industry.

They added that his time on Telecom Italia's board, after Telefónica bought an indirect stake in Italy's leading telecoms company last year, could be useful preparation for an eventual takeover.

Mr Alierta is also expected to devote some time to trying to secure control of Vivo, Brazil's largest mobile operator, which Telefónica jointly owns with Portugal Telecom, Portugal's leading telecoms company.

December's management reshuffle at Telefónica, the world's fifth largest telecoms company, was the most significant in four years.

It followed Mr Alierta's statement that the company was not looking at major acquisitions after a series of deals that culminated in 2006 with the £17.7bn ($34.7bn) purchase of 02, the UK mobile operator. He wants to focus on organic growth.

Mr Alierta is chairman and chief executive but Julio Linares, previously head of group strategy, is taking up a revived role of chief operating officer, which has been vacant at the company since 2003.

The heads of Telefónica's three main operations - Spain, the rest of Europe, and Latin America - will report to Mr Linares rather than Mr Alierta.

These changes will give Mr Alierta more time to focus on some of Telefónica's most delicate priorities.

Like Vodafone - the UK mobile phone group that has a 3 per cent stake in China Mobile, China's leading wireless operator - Telefónica is interested in increasing its presence in the country.

The Spanish group bought a 3 per cent stake in China Netcom, the country's second largest fixed-line phone company, in 2005.

The stake was subsequently raised to 5 per cent, and Telefónica plans to increase it to 10 per cent.

Mr Alierta took up one of Telefónica's two seats on China Netcom's board last month, before a possible restructuring of the country's state-owned telecoms companies this year by the Beijing government.

One possible scenario involves breaking up China Unicom, the country's second largest mobile operator, and dividing its networks between China Netcom and China Telecom, the country's leading fixed-line company. China Netcom is keen to become a mobile operator. The restructuring might give Telefónica the opportunity to secure a bigger minority stake in the company.

Luis Prota, Morgan Stanley analyst, said: "Telefónica would be pleased to take advantage of a growing market like the Chinese market."

Mr Alierta took a seat on Telecom Italia's board, after Telefónica last year joined a consortium led by Italian financial institutions that bought a controlling stake in the Italian company.

Terence Sinclair, analyst at Citigroup, said he expected Mr Alierta to contribute to Telecom Italia's deliberations on dividend policy and cost-cutting, as well as talks with regulators on whether to hive off its fixed-line network. Mr Alierta will also have to ensure that Telefónica and Telecom Italia deliver on his prediction that the two companies can generate annual cost savings of €500m ($738m), partly by making joint purchases of telecoms equipment such as mobile handsets.

If Telefónica shows that it can help Telecom Italia, such assistance may prove valuable preparation for the Spanish company to buy its Italian counterpart one day. Such a move would almost certainly be opposed by Italy's politicians but if consolidation of Europe's former telecoms monopolies eventually happens, Telefónica is well placed to participate.

Mr Sinclair said: "Telefónica would not want to do anything that reduces the chance of higher ownership of Telecom Italia, even if that is an extremely long-term goal."

Telefónica declined to comment on China and Brazil. On Italy, however, the company said it was "very satisfied" with developments at Telecom Italia since the consortium took its controlling stake two months ago.

"A strong new management has been appointed at Telecom Italia with a clear shareholder value orientation," said the spokesman

Source:
http://www.msnbc.msn.com/id/22639066/

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