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* Internet clients receive up to 200 euros to coverpenalties
* Telefonica leading move to bundled packages
* Jazztel offer first of kind in market
* Price war heats up in recession
MADRID, Jan 30 (Reuters) - Spain's Jazztel willoffer its Internet customers up to 200 euros ($270) to coverpenalty fees if they switch mobile contracts to the telecomsfirm, company sources said, fuelling a price war that hasescalated in recent months.
It is a sign of how Spain's telecoms companies, led byTelefonica, are seeking to bundle fixed, mobile,Internet and television services to stem falling revenue in adeep recession.
Cash-to-switch offers are used by other utility companies,such as power providers, and Orange Spain offers a 10euro discount on a smartphone and 20 percent off six bills formobile clients switching to the operator.
"It's not a normal offer, it's an offer to increase clientloyalty and it's being carried out on an individual basis," oneJazztel source said.
The money is for new mobile clients to pay any penalty forcancelling existing contracts.
In recession-hit Spain, where more than a quarter of theworkforce is jobless, competition between mobile operators tohold onto clients is increasingly intense.
Jazztel is the first operator in Spain to offer this kind ofdeal, though other operators may offer incentives to switch on amore informal level when customers call to cancel. Thesemarketing tactics are common in the telecom industry but are nottypically disclosed.
Smaller operators, such as Teliasonera's Yoigo andJazztel, are gaining clients at the expense of top playersTelefonica and Vodafone.
According to data from Spain's telecoms watchdog,Telefonica's share of the mobile market shrank to 36.6 percentin November 2012 compared to 40 percent a year before, whileno.2 operator Vodafone's market share fell to 26.8 percent from28.1 percent.
Virtual operators, such as Jazztel, which do not have theirown mobile networks but rent them from other operators andusually offer discount prices, increased their share of themarket to 8.8 percent from 6.3 percent.
Jazztel more than doubled the number of mobile clients ithad in 2012 to 343,000 at end-December from 143,000 the yearbefore. Over 100,000 new customers signed up with the company inthe last quarter of the year.
The offer is being directly marketed to certain clients whoalready have a Jazztel ADSL internet connection and a mobilecontract with another company.
"There's a limit of 200 euros and it will depend on theclient," the source said.
Former monopoly Telefonica lost over 2 millionmobile connections since it stopped subsiding smartphones lastspring. Vodafone, which is in talks with labour unions todismiss just under a quarter of its workforce in Spain, broughtback subsidies following a client exodus.
Jazztel has fared better than its peers in the economicdownturn, posting a 22 percent rise in nine-month revenues to669 million euros.
Its share price has risen 28 percent over the last year to5.3 euros. That compares with Telefonica's 17 percent drop to10.9 euros in the same period.
Telefonica introduced a bundled service offering broadband,television, internet and mobile in October, and signed up 1million customers in under three months. Other operatorsincluding Vodafone and Orange have fought back withsimilar deals.
