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* Venture to rank as 2nd-largest telco in the Netherlands
* Vodafone to pay 1 billion euros cash to Liberty
* Entity would have had 2015 sales of 4.41 billion euros
* Operating profit seen at roughly 1.9 billion
* Vodafone shares down 0.5 pct
By Toby Sterling and Paul Sandle
AMSTERDAM/LONDON, Feb 16 (Reuters) - Mobile telecoms networkoperator Vodafone and cable company Liberty Global have agreed to combine their Dutch operations tocreate a stronger package of TV, broadband Internet and mobile,aiming to better take on former incumbent KPN.
Vodafone will pay 1 billion euros ($1.1 billion) cash toJohn Malone's group to equalize their stakes in the venture,which will rank as the second-largest telecoms company after KPNin the Netherlands.
The Dutch venture is a local solution to a wider problemfacing both companies - the increasing demand for convergedservices in Europe that former incumbents are often betterplaced to meet.
Vodafone and Liberty had been in talks about combiningoperations in as many as seven European markets last year. Thosenegotiations failed, but were resurrected this year only focusedon the Netherlands.
Vodafone Chief Executive Vittorio Colao said the Dutchventure was not a blueprint for similar deals, for example inBritain, where Liberty owns cable TV network Virgin Media.
"There is no read-through to a wider deal and it is notcurrently under consideration," he told reporters on Tuesday."Our strategy is an evolutionary strategy which has to be marketby market."
U.S.-based Liberty's Ziggo is by far the largest cable TVoperator in the Netherlands, while Vodafone is thesecond-biggest mobile network operator behind KPN. Colao saidthe combination would provide a strong alternative to KPN.
"We are stronger in mobile and in enterprise but we arereliant on wholesale access for fibre," he said. "Ziggo has anationwide cable and fibre network, scale in high-speedbroadband and leadership in TV, but today is reliant onwholesale ... access on Vodafone's network."
GREATER SYNERGIES
Analysts at Citi said they saw the deal as positive for bothsides, compared with taking no action, with Liberty gaining themost. "They have, for now, passed on the opportunity ofcombining the parent companies, a move that could have tappedinto much greater synergies, and so risk disappointing someinvestors," the bank said.
Shares in Vodafone were down 0.5 percent at 208.5 pence by1035 GMT.
The tie-up will also create a stronger competitor to smallerplayers Tele2 and Deutsche Telekom unitT-Mobile. In the Netherlands Tele2 is attempting to scale up itsoperations, while Deutsche Telekom has been attempting to sellT-Mobile to private equity investors.
Colao said neither company wanted to leave the Netherlandsmarket so an equal joint venture was the solution. Heacknowledged some other joint ventures in European telecoms hadnot endured, but said Vodafone successfully operated many suchstructures worldwide, including a JV with Hutchison inAustralia.
The fact that the two companies' Dutch operations were"highly complementary" boded well, he said, adding: "Is that arecipe for eternity? I don't know ... But to be sure its a verystable and fruitful combination. Time will tell."
The Dutch entity would have had 2015 sales of 4.41 billioneuros and operating profit of roughly 1.9 billion, the companiessaid.
They said they would see savings of 280 million euros peryear from the fifth year after the closing of the deal, whichthey expect towards the end of 2016.
Morgan Stanley, Robey Warshaw and UBS advised Vodafone,while Goldman Sachs and LionTree Advisors worked for Liberty.($1 = 0.8965 euros)
(Additional reporting by Ismail Shakil in Bengaluru; Editing byDan Grebler and David Holmes)
