By Anna Ringstrom and Olof Swahnberg
STOCKHOLM (Reuters) - Sweden's TeliaSonera <TLSN.ST> has scrapped plans to sell its fast-growing budget Spanish mobile operator Yoigo after failing to attract high enough bids, signalling no let up in competition in a depressed market.
Large Spanish mobile firms like Telefonica <TEF.MC> and Vodafone <VOD.L> have lost clients to smaller, often lower-cost ones like Yoigo as cash-strapped consumers have searched for cheaper offers.
Industry sources told Reuters last year that Vodafone and France Telecom <FTE.PA> would be natural bidders for TeliaSonera's 76.6 percent stake in Yoigo, which they said the Swedish firm was hoping could fetch around 1 billion euros ($1.3 billion).
"Whilst this news will have no impact on our (TeliaSonera) forecasts which assumed the status quo, it will likely be interpreted negatively for Telefonica, Vodafone and France Telecom," Espirito Santo analysts said in a note to clients.
"There had been high hopes for consolidation and the potential for market repair in the Spanish mobile market."
TeliaSonera, which was looking to focus on its other businesses which are mostly not at the budget end of the market, declined to say what prices it had been offered for Yoigo and said it remained committed to the business.
"Yoigo has great potential for further development, but as its market strategy does not quite match our other operations, we have been prepared to divest it if we were offered a price which fully reflects its future potential," TeliaSonera Chief Executive Per-Arne Blomquist said on Tuesday.
"As this requirement has not been met, we have discontinued the sales process and look forward to continue developing the company."
Yoigo's sales grew 13 percent in local currency in 2012 to the equivalent of 8.4 billion Swedish crowns (£855.3 million) while operating profit before amortisation and depreciation at the firm, which struggled with losses previously, soared 49 percent to 627 million.
Yoigo, Spain's fourth-biggest operator, gained 85,000 new clients in January, taking its market share to 6.6 percent, while former monopoly Telefonica shed 243,000 customers.
In an increasingly competitive market where 2.8 million Spaniards ditched their phones in 2012, Yoigo has undercut competitors with deals like "The One" offering 1 gigabyte of Internet usage and calls at 1 cent a minute for 9 euros a month.
Shares in TeliaSonera, which has a market value of 202 billion crowns ($31 billion), were up 0.5 percent at 0945 GMT, broadly in line with the wider European stock index <.FTEU3>. Telefonica shares were down 0.7 percent, while Vodafone's were up 4.6 percent and France Telecom's up 1.6 percent.
Stefan Olsson, analyst at Alandsbanken, said he was not surprised TeliaSonera had abandoned the sales process.
"Spain is a pretty tough market right now so maybe the timing is simply wrong for getting a price tag that is attractive enough," he said.
($1 = 0.7784 euros)
($1 = 6.5075 Swedish crowns)
(Additional reporting by Niklas Pollard in Stockholm and Clare Kane in Madrid; Editing by Mark Potter)