Telefonica says Italy deal gives it leverage

By Kirstin Ridley and Elisabeth O'Leary

PARIS (Reuters) - Spain's Telefonica (TEF.MC: Quote, Profile, Research, Stock Buzz) insisted on Thursday a deal with Telecom Italia (TLIT.MI: Quote, Profile, Research, Stock Buzz) gave it the muscle to influence strategy in Europe and Latin America, despite having no executive power on the Italian group's board.

Peter Erskine, head of Telefonica's non-Spanish European operations, O2 Europe, argued that the agreement, which gives it a 10 percent indirect stake, was enough to allow Telefonica to steer strategy as Telecom Italia's only telecoms partner.

"We bought a chip to be at the table and it's now up to us how well we play that chip," he told the Reuters Global Technology, Media and Telecoms Summit in Paris. "We are part of a consortia ... and the banks are saying effectively, you are the industrial partner."

The Spanish company last month became the largest shareholder in Telco, a new holding company that will control Telecom Italia, after paying 2.31 billion euros ($3.14 billion) for a 42.3 percent stake.

This gives it a 10 percent indirect stake in Telecom Italia, but only two non-executive seats on the board.

Telefonica sources have argued that the deal places it in prime position for future European consolidation and stymies its biggest Latin American rival, Mexican tycoon Carlos Slim, a former Telecom Italia suitor.

Slim, who runs South America's largest mobile phone company America Movil (AMXL.MX: Quote, Profile, Research, Stock Buzz), has been keen on a deal with Telecom Italia to boost his position in Brazil, South America's largest economy.

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