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Swisscom sole remaining party in talks for Vodafone Italy, sources say

FILE PHOTO: The logo of Swiss telecoms group Swisscom is seen at an office building, in Zurich

By Amy-Jo Crowley, Elvira Pollina and Paul Sandle

LONDON/MILAN (Reuters) - Swisscom is the only party in discussions over a potential Vodafone tie-up in Italy, sources close to the matter told Reuters.

A combination with Swisscom's Fastweb Italian business is the sole option Vodafone has been working on after its January rejection of a bid to merge its Italian operations with those of Iliad, the three sources said on condition of anonymity because the talks are private.

Iliad had proposed a 50-50 joint venture with Vodafone in Italy to create an operator with a combined enterprise value of 14.7 billion euros ($15.8 billion).

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Spokespeople for Vodafone and Swisscom declined to comment.

Vodafone said on Jan. 31 that it was no longer in talks with Iliad but discussions "with others" continued.

In a trading update five days later, however, Vodafone Chief Executive Margherita Della Valle dropped the reference to others and merely said the company was in "active discussions".

Like other telecoms operators in the Italian mobile market, Vodafone is grappling with shrinking revenue and increasing pressure on margins.

Rising competition has sent total revenue in the Italian market down 21% in the past decade to 27.1 billion euros, according to trade association Asstel.

A deal with Swisscom's Fastweb would create Italy's second-largest fixed-line broadband operator, with a strong presence in the prized business segment.

It would be likely to face lower regulatory hurdles than a combination with Iliad but offers lower potential cost benefits, according to analysts.

(Reporting by Amy-Jo Crowley, Elvira Pollina and Paul Sandle; Editing by Anousha Sakoui and David Goodman)