My ears pricked up at reports late last week Telefonica is considering selling a stake in its Czech Republic division to China Mobile.

 

The Spanish operator has been doing a lot of business in China in recent weeks, but with China Unicom rather than China Mobile. The firm extended an existing partnership with Unicom to cover development of machine to machine technical specs, and access to points of presence.

 

Now local Czech news sites claim Telefonica is likely to sell a stake in its O2 business to China Mobile, and even exit the venture completely within a couple of years. The Spanish firm’s stakes in Portugal Telecom, Zon Multimedia, Hispasa and Amper are also on the chopping block, Czech Position.com reports.

 

Lending credence to the reports are Telefonica’s recent deals in China, and a 2% year-on-year fall in its Czech unit’s OIBDA to €689 in the third quarter. Against the speculation is the immediate denial by a Czech-based Telefonica spokesman, and the fact China Mobile president Wang Jianzhou has previously said he would rather pump cash into network expansion than an acquisition.

 

What is clear is that the Spanish incumbent must act quickly to address falling earnings in Europe, specifically in its domestic market. Spain was the main reason for a massive drop in third quarter earnings, with the division recording an operating loss of €596 million compared to a €2.2 billion profit in 3Q10.

 

Luis Miguel Gilperez, the firm’s domestic president, is confident 2012 will prove a better year for Telefonica in its home market. He predicts efforts to reduce churn will begin to bear fruit and so lift earnings in Spain, and that the firm’s performance in Europe as a whole will be better than forecast, Bloomberg reports.