BARCELONA: Telecom Italia shares rose as much as 3 percent on Monday after Orange boss Stephane Richard said a combination with the Italian company would be attractive.
A Telecom Italia spokesman said no talks over a deal had occurred. At 0855 GMT, Telecom Italia shares were up 2.4 percent at 1.092 euros. Shares in France's Orange were down 0.3 percent to 16.24 euros.
Telecom companies in Europe have been in a deal-making frenzy since 2013 as they seek to exit non-core markets, combine fixed-line and mobile services, and cut costs.
But to date no big cross-border deals have joined telecom majors, although European regulators would like to see regional champions emerge to anchor much-needed broadband investment.
Sector executives have long said that while major synergies can be reaped from in-market consolidation, the case is much less clear for cross-border deals where savings cannot be made from combining networks and commercial operations.
In an interview before Mobile World Congress in Barcelona, Orange Chief Financial Officer Ramon Fernandez admitted as much.
"This period of consolidation is not over," he told Reuters.
"The national markets will rationalise further and then there will be the question of whether there will be cross-border deals. But before that occurs, it remains to be seen whether there is real value to be created with such deals."
Telecom Italia, which is heavily indebted but enjoys high profit margins in its home country where there is no cable competition, could become a target for a buyer, bankers have said.
It also controls Brazil's Tim Participacoes, seen a takeover target as well. Bankers believe Telecom Italia would be a more attractive prospect for a European operator if it exited Brazil, and used the proceeds to pay down debt.
The French state owns 25 percent of Orange, so any deal would need its approval. Italy does not own a direct stake in Telecom Italia, but has a say over so-called "strategic" assets, including Telecom Italia's network.
BESI Research analysts said on Monday they were sceptical over the benefits of a deal since there was no overlap between Orange and Telecom Italia's operations.
"The different regulatory framework between markets and more importantly the different market dynamics would in our view make a tie-up between Orange and TI a somewhat ineffective exercise," they wrote.
"We do reckon that some savings could be reached through joint procurement, shared partnerships, etc., but these sorts of efforts can be developed without the need of a merger that carries significant execution risk.
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