Telefonica ends 3G ambition

MADRID, Spain (CNN) -- Telefonica stocks soared after Spain's dominant phone company suspended high-speed mobile phone operations in Europe at a cost of 4.9 billion euros.

Its stock rose 14.2 percent to 9.50 euros in early morning trading in Madrid on Thursday. Telefonica's Wall Street traded stocks rocketed 18 percent on Wednesday after the company announced plans to retrench.

Telefonica now plans to concentrate on its domestic market, a move that has been welcomed by analysts, many of whom had not expected its European ambitions to pay off.

"We have been historically skeptical of its expansion strategy and this is an admission of past failings," analysts at Bear Stearns told investors. "

Its decision to suspend its third-generation (3G) mobile phone business in Germany, Italy, Switzerland and Austria could save "the company 5.58 billion euros of operating losses over the next four years, Bear Stearns said.

Telecom companies -- like France Telecom, Deutsche Telekom, Vodafone, KPN of the Netherlands and BT Group -- spent more than $100 billion on acquiring licenses to operate 3G services 18 months ago.

At the time 3G services -- offering email, video and music services direct to mobile phones -- were seen as the industry's lifeline to maintain the sector's staggering growth.

But that dream has been quashed as operators have been forced to reduce debt.

Telefonica's decision to write down its expansion to the tune of 4.9 billion euros, plunged the company to its first ever loss of 5.7 billion euros, compared to a profit of 716.7 billion euros.

In a statement late on Wednesday Telefonica said: "The shareholders of Group 3G, Telefonica Moviles (its mobile phone business) and Sonera (of Finland) have decided to suspend all commercial activities in Germany after seven months of operations."

Germany is a crowded market, with other operators such as Europe's biggest mobile phone company Vodafone, France Telecom's MobilCom, KPN's E-Plus and Deutsche Telekom.

France Telecom has written off its investment in MobilCom, Germany's fifth-biggest mobile phone company, by 3.7 billion euros and has been involved in a wrangle with its German partner over its commitments to 3G investments.

Telefonica's partner in Germany, Sonera, which is being bought by Sweden's Telia, said on Thursday it would write down the values of its international assets -- the bulk of which are German -- by 4.3 billion euros. The company posted a second-quarter loss before items of 4.2 billion euros.