Spain’s Telefonica said first-quarter net profit halved after the value of its stake in Telecom Italia plunged following a capital increase and it cut prices in its recession-hit home country.

Net profit at the euro zone’s largest telecoms company fell 54 per cent to €748 million. The bottom line was hit after Telefonica wrote down the value of its 10 per cent indirect stake in Telecom Italia to €37 million. Telefonica invested €2.3 billion when it bought the stake in 2008. Italy’s biggest telecom player posted a net loss for 2011 after a goodwill writedown on its domestic business due to an economic downturn.

Last week Telecom Italia shareholders agreed to refinance its investment vehicle’s debt, meaning Telefonica must contribute €277 million to a capital increase and a new bond issue.

Telefonica’s revenue was virtually flat at €15.5 billion as fast growth in Latin America, which accounts for almost half of group revenue, compensated for tough competition in the company’s main European markets, where revenues slipped.

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