Telefonica sees no merger in Brazil mobile now

By Elisabeth O'Leary

PARIS (Reuters) - The head of Telefonica's (TEF.MC: Quote, Profile, Research, Stock Buzz) European operations said a merger between its Brazilian joint venture Vivo (VIVO4.SA: Quote, Profile, Research, Stock Buzz) and Telecom Italia's TIM Participacoes (TIM Brasil) arm was unlikely at least in the medium term.

Telefonica's purchase of a 10 percent indirect stake in Telecom Italia last month has triggered market talk the Spanish company could use the deal to win control of the Italian group's Brazilian asset, despite the overlap with market leader Vivo and possible competition hurdles.

"Medium term, cooperation is the right route forward ... I don't see the likelihood of a merger in the medium term, although you should rule nothing out or in," said Peter Erskine, the chairman and chief executive of Telefonica O2 Europe.

"But that's a piece of the reason why we're at Telecom Italia (TLIT.MI: Quote, Profile, Research, Stock Buzz)," Erskine told the Reuters Global Technology, Media and Telecoms Summit in Paris on Thursday.

Telefonica has repeatedly said its first option is to try to buy the other half of Vivo from European partner Portugal Telecom (PTC.LS: Quote, Profile, Research, Stock Buzz) -- but only "at the right price". Vivo is currently worth about $8.47 billion on the stock market.

"It's a good asset, it's improving in performance and we feel very definitely...we could run it better," said Erskine. "Of course, downstream there could be opportunities and synergies with the Italian asset."

Erskine said relations with Portugal Telecom were good, although insiders say they have has become increasingly frosty. Vivo's performance has sagged and PT executives expressed anger after Telefonica backed a rival offer to take over the Portuguese firm.

Erskine declined to be drawn on any time frame for a possible deal over Vivo.

In the meantime, Telefonica has no plans to sell its 10 percent stake in its Portuguese neighbor.

"I don't think there's a lot in it for Telefonica, but it's a friendly relationship," he said.

Erskine said Brazilian competition authorities were still reviewing the implications of its Telecom Italia purchase.

"Of course in Brazil there are synergies and of course as a defensive play, Telefonica has a greater say in what happens to that (TIM Brasil) asset," Erskine said.

(Additional reporting by Kirstin Ridley)