When Telefónica paid €2.7bn ($3.2bn) for control of Cesky Telecom, the Czech operator, analysts hailed a new era in the Spanish group’s expansion strategy.

After a 15-year-long raid on Latin American telecoms groups – interspersed with a costly and value-destroying foray into content providers and third-generation mobile licences around Europe – the new focus appeared to be integrated operators in emerging European economies. Interest in the sale of Turk Telecom, Turkey’s state-owned carrier, confirmed the trend, although Telefónica withdrew from the contest.

However, rumours – constantly talked down – that it would launch a takeover bid for O2 of the UK or KPN of the Netherlands reflected the lack of fresh acquisition opportunities in eastern Europe.

In the broader sense, Monday’s agreed bid for O2 fits with Telefónica’s transformation in recent years from an unwieldy multi-media conglomerate into a focused fixed-line and wireless service provider with an expanding footprint.

In February, the company bought out minority interests in Terra, its 76 per cent-controlled internet service provider. Last year, it sold Lycos.com, its loss-making US internet portal.

Endemol, the TV production group that created the Big Brother phenomenon, is to be partially floated, marking the beginning of the end of Telefónica’s experiment with becoming a broader media group.

Telefónica is also expected to sell its 20 per cent interest in Sogecable, a digital TV platform that competes indirectly with its own Imagenio broadband TV service.

Although it has lost market share in traditional telephony businesses in Spain, Telefónica has maintained its overall margins with heavy cost-cutting in its domestic market and rapid expansion in Latin America, where last year it completed the $5.85bn acquisition of BellSouth’s mobile assets. A costly push into Spain’s still immature broadband and pay-TV market should provide a template for the next phase of growth in emerging economies.

Sector analysts struggle to find fault with the company. It was forgiven for paying what many deemed to be too much for Cesky Telecom, because it gave the company a strategic foothold in eastern Europe.

Fears that the Czech deal would force it to curtail a value-enhancing share buy-back were quickly dispelled. As it came soon after the BellSouth purchase, expectations of a €2bn extension to an earlier €4bn buy-back programme were left to fade.

Instead, Telefónica surprised everyone by announcing an effective €4.8bn extension of the scheme to 2007 at its annual investors day in April. However, the share price has failed to react positively enough, adding urgency to its next move in Europe. France Télécom’s €10.6bn purchase in July of Amena, Spain’s third-largest wireless operator, had the same effect.

Having sold or consolidated much of the internet and media-related units invested in and spun off by Telefónica during the 1990s, the company is concentrating on cash-generating acquisitions around its core activities. However, not all his purchases have worked out.

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