Telecom Italia SpA's second-largest investor said a merger with Telefonica SA may shore up the Spanish company's efforts to build sales in Brazil.

``A full merger with Telecom Italia would solve Telefonica's problems in Brazil,'' Marco Fossati, whose family is the second-largest shareholder of the Italian company, said Wednesday in an interview.

The companies could create an integrated mobile, broadband and fixed-line service provider and add content, he said. Telefonica and Portugal Telecom SGPS SA jointly own Vivo Participacoes SA, the largest mobile-phone company in Brazil. Telecom Italia's Tim Participacoes SA ranks third in the Latin American market. Telefonica additionally owns fixed-line operator Telecomunicacoes de Sao SA, also known as Telesp.

A combination may leave Telefonica with antitrust issues in Brazil and force it to sell its stake in Vivo, analysts have said. Even if that is the case, combining with Telecom Italia may present Telefonica with an attractive option, Fossati said.

``They would still be able to combine Tim, Intelig and Telefonica's fixed-line assets in the country,'' he said. ``Telecom Italia investors like myself know perfectly well the potential value creation that this possible combination will generate for Telefonica shareholders.''

Madrid-based Telefonica already owns a stake in Telecom Italia. It joined a group of Italian investors in 2007 to acquire a controlling stake in Telecom Italia for 4.1 billion euros ($5.7 billion), beating Mexican billionaire Carlos Slim. Telefonica has tried and failed to purchase Portugal Telecom's stake in Vivo.

Brazil's Strongest Company'

Some analysts said this week that a Telefonica-Telecom Italia deal is unlikely because of regulatory risks in Italy and antitrust limits to a possible combination, especially in Brazil.

``We would be surprised if a deal goes ahead,'' said Francisco Salvador, a strategist at Dexia Iberian Equities in Madrid. ``The possible conditions in Brazil and Telecom Italia's situation could challenge the benefits of a merger.''

Fossati, whose family holding company Findim Group SA owns about 5 percent of Telecom Italia, disagreed.

The new business ``would probably be Brazil's strongest company,'' he said. ``There would be major economies of scale and synergies in Brazil.''

Telefonica may want to keep its stake in Vivo, said Roger Appleyard, head of global credit research at Royal Bank of Canada in London.

``Telefonica will likely keep Vivo to merge it with Tim, disposing the regional units where the market concentration would be too high from a regulatory point of view,'' he said. ``The cleaner scenario would be that Telefonica sells its stake in Vivo to its partner, Portugal Telecom, and merges Tim with Telef. This option is less likely, however, because Telefonica is in the driving seat and may be more inclined to keep the asset it knows better.''

Vivo's share of Brazil's mobile-phone market in December grew to 29.75 percent, rising for a fourth month. Tim's share fell to 23.63 percent from 23.75 in November.

Tim agreed last year to buy long-distance operator Intelig Telecomunicacoes Ltda.

Telefonica officials weren't immediately available for comment.

``If the key of the deal is to take over Tim then why not just buy that asset and not take over all of Telecom Italia,'' said Luis Padron, a Madrid-based analyst at BNP Paribas Fortis. ``It makes no sense to add all the debt of Telecom Italia and be responsible of the company's needed investments if your aim is to fix Brazil.''