Telefonica says Mexican arm could be candidate for flotation

By Leila Abboud

BARCELONA, Nov 11 (Reuters) - Spain's Telefonica (Amsterdam: TA6.AS - news) is committed to staying in the Mexican market and sees its subsidiary there as an attractive candidate for a share market flotation, the group's finance chief said on Wednesday.

"We have been in Mexico for so many years, investing so much money, and now that it's starting to fly and make money, it would be strange for us to leave now," Angel Vila said at the annual Morgan Stanley European Technology, Media and Telecom investor conference in Barcelona.

"It (Other OTC: ITGL - news) 's a growing business that could be attractive for an initial public offering," he added.

Telefonica has a market share of about 20 per cent in Mexico but has long trailed billionaire Carlos Slim's America Movil which has around 70 percent. It also faces a new challenge from AT&T (Sao Paolo: ATTB34F.SA - news) , which bought third-placed Iusacell last year.

Telefonica, led by Cesar Alierta for the past 15 years, has been transformed since the economic crisis forced it to focus on fewer but bigger foreign markets, such as Germany and Brazil, and cut its debt and gearing with the help of a series of asset sales, the most recent being its 10.25 billion-pound ($15.6 billion) deal to sell UK mobile network operator, 02, to rival operator Hutchison (HKSE: 0013-OL.HK - news) .

That deal is now being vetted by the European competition regulators with a decision expected by mid-April (LSE: 0N69.L - news) next year.

The prospects for winning approval were thrown into doubt two months ago when the regulators blocked a merger in Denmark over concerns that consumers would face higher prices if the number of network operators was reduced.

Vila said he remained confident that the sale of 02 UK would proceed but Telefonica would have other options if it failed, including a sale to another party or a share market flotation.

"We're optimistic because Hutchison has experience in negotiating other deals with (the European) Commission," he said, referring to Hutchison's acquisitions of local rivals O2 Ireland (Other OTC: IRLD - news) and Orange Austria.

"Also we think that Hutchison is quite keen in achieving the transaction that will allow them to be in a much better competitive position in the UK market," he added.

Hutchison is expected to offer a package of concessions to the regulators in the coming weeks in a bid to get the deal through, which could include the sale of some radio spectrum or giving rivals access to the combined O2 and Three networks.

Vila added that there was no clause in the contract with Hutchison to allow for the price to be renegotiated if European regulators demanded very heavy concessions. ($1 = 0.6585 pounds) (Editing by Greg Mahlich)