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Telefonica renews contract to rent network to cable firm ONO

A man walks past Telefonica's building in central Madrid March 26, 2013. REUTERS/Juan Medina
A man walks past Telefonica's building in central Madrid March 26, 2013. REUTERS/Juan Medina

MADRID (Reuters) - Telefonica has signed a new contract with Spanish cable operator ONO allowing it to use its network for another 2-1/2 years to sell on phone services, a source familiar with the deal said on Monday.

ONO and rival Jazztel, known as virtual operators because they do not own networks, are making headway in an increasingly competitive environment since the market shifted to convergent offers that bundle phone with television and internet services.

The major attraction of virtual operators, especially in a market like Spain with a 27 percent unemployment rate, is their low prices.

Telefonica, Europe's biggest telecoms firm by revenue, and ONO declined comment on the deal. The source, who declined to be named because he was not authorized to speak to journalists, did not give financial details of the contract.

ONO, which has used Telefonica's Spanish network since 2007, stepped up efforts in its mobile business in recent months, selling the service as part of packages with television, internet and home phone offerings.

Fixed line specialist Jazztel has also recently made gains in Spain's mobile market.

While virtual players still have only a small share of the market, they are attracting new clients as Telefonica and no.2 player Vodafone shed customers.

Banco Sabadell analysts said in a note to clients that conditions of the contract could have been changed to be more favorable to Telefonica due to increased data traffic and investment the company needs to put into a new 4G network.

(Reporting by Robert Hetz and Clare Kane, Editing by Fiona Ortiz and Louise Heavens)

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