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Telefonica cuts handset prices to win back Spanish clients

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

MADRID (Reuters) - Spanish telecoms operator Telefonica lowered prices on smartphones by between 15 and 30 percent in its domestic market on Wednesday to fight increasing competition in the recession-hit country.

Telefonica, which stopped subsidizing handsets for new clients last year to save cash, lost over 700,000 mobile customers in the first quarter of the year as cheaper rivals, such as Yoigo, gained market share.

In Spain, where 27 percent of the workforce is jobless, cash-strapped consumers are shopping around for deals or ditching their phones altogether, resulting in lower revenues for operators like Telefonica.

The former monopoly lowered the price of a Samsung Galaxy Mini 2 to 116.16 euros ($150) from 167 euros, while the new Galaxy S4 will retail for 639 euros compared to an original price of 755 euros.

A Telefonica source said the move did not mark a return to subsidies.

Telefonica's domestic margins have improved thanks to its decision to stop subsidies, and the introduction of convergent offers bundling several services has contained customer bleed to some extent, but the dismal economy still drags.

The company's revenue dropped 16.4 percent year-on-year in Spain to 3.26 billion euros ($4.2 billion) in the first quarter, and Brazil overtook the domestic market as Telefonica's biggest source of revenue for the first time.

"We believe this move, together with the new tariff plans launched in mid April, are clear attempts to reverse the negative trends that Telefonica has faced over the last couple of quarters," Espirito Santo analysts said in a note.

Data from the telecoms regulator CMT showed on Tuesday that Telefonica's market share fell to 35.6 percent in March from 38.6 percent a year before. ($1 = 0.7769 euros)

(Reporting by Robert Hetz; Writing by Clare Kane; Editing by Louise Heavens)

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