Telefonica goes back to basics in Spain with O2 brand

MADRID (Reuters) - Spain's Telefonica said on Tuesday it would start selling low-cost phone and internet services in its key domestic market, in a shift away from its recent focus on pricy premium packages.

Telefonica will launch the O2 brand it sells in Britain in September in Spain, where it makes a third of its core earnings but was hit by the euro zone's economic crisis.

Fierce competition on its Movistar brand from cheaper rivals MasMovil and Orange's Jazztel has squeezed domestic market share for Telefonica, Spain's fifth-biggest company.

Until now it has responded by investing billions of euros in high-speed networks and aiming upmarket with its Movistar Fusion bundled package of super-fast internet, premium TV and mobile and fixed phone services.

The O2 offer will not include TV, and will cost around half the 87.8 euros ($104) Fusion customers fork out every month.

"We understand that this model was not sufficiently covered by Movistar," Pedro Serrahima, director of Telefonica's multi-brand strategy, told a news conference.

($1 = 0.8484 euros)

(Reporting by Andrés González; Writing by Isla Binnie; Editing by Susan Fenton)