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SAO PAULO/MILAN, Sept 16 (Reuters) - Shares in Telecom Italia fell 2 percent on Tuesday after a report the Italian phone group is considering the possible acquisition of Brazilian telecoms operator Oi.
Telecom Italia has spoken to advisers about using its Brazilian unit TIM Participacoes to buy Oi in a move to challenge Spanish rival Telefonica, Bloomberg said, citing people who had asked not to be identified.
A source with direct knowledge of the situation told Reuters that a possible Telecom Italia takeover of Oi was an idea that had been floated for some time. The source did not elaborate.
After falling as much as 3 percent on the report, Telecom Italia shares ended down 2 percent at 0.9 euros, their lowest level in five days, on concerns about how the debt-laden Italian group would finance any acquisition. The European index of telecoms companies fell 0.1 percent.
A senior telecoms executive with knowledge of the Brazilian market said a merger between Telecom Italia's Brazilian unit and Oi was possible but any deal would face regulatory hurdles since the combination of the two would create a player with a dominant position in some Brazilian regions.
"It's complicated but possible. Strategically, it's a card to play," the executive said, asking not to be named.
Telecom Italia declined to comment.
The report said no approach had been made.
Brazil is crucial for Telecom Italia, because its market still has growth potential, but the Italian group needs to invest heavily there in the face of mounting competition. Brazil accounts for about one third of Telecom Italia's revenues.
Last month, Telecom Italia, which is selling assets in Italy and abroad to help cut debt and fund investment, lost out to Telefonica in a battle to take over Brazilian broadband operator GVT.
In August, Oi unveiled plans to take over TIM Participacoes, in a move sources said was aimed at breaking up the country's second-biggest wireless carrier.
Reporting by Guillermo Parra Bernal, Danilo Masoni and Stephen Jewkes; editing by David Clarke