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* Spain's fourth-biggest mobile operator too small tocompete
* Yoigo is key part of new TeliaSonera CEO's strategicreview
* CEO says to look at opportunities as they come up
By Harro Ten Wolde and Leila Abboud
BARCELONA, Feb 25 (Reuters) - Swedish group TeliaSonera has to take action on its Spanish mobile businessYoigo, which could include making acquisitions, as it iscurrently too small to compete effectively, its chief executivesaid on Tuesday.
"With a 7 percent market share in a converged market, whereyou really don't have scale, of course is not a great positionfor long-term profitability or sustainability," Johan Dennelind said on the sidelines of the Mobile World Congress trade fair inBarcelona.
"Now the focus is to create value and make Yoigo futureproof. And there is a lot of work to realise that," he said.
Finding a solution for Spain's smallest mobile operator, inwhich the Swedish firm has a 76.6 percent stake, is a key partof the strategic review which began when Dennelind took the helmin September.
TeliaSonera is open to all options including makingacquisitions or selling the business as whole, Dennelind said.
"Making Yoigo future-proof requires us to be active becauseit needs both investments organically but also for us to look atopportunities as they come up," he said.
Yoigo has struggled to recruit customers and turn a profitsince its creation in 2006. Last year it added 136,000 customerson a net basis, compared to 394,000 in 2012, while mobileservice revenue actually shrunk, according to Berenberg.
Analysts say Dennelind now has several options: sell Yoigooutright to a rival like Vodafone or Orange, add bulk with a tie-up with domestic broadband group Jazztel, or merge it with Orange's Spanish business, thesecond-biggest operator behind Telefonica.
Dennelind declined to comment on what specific options hiscompany might be considering, saying only that, "We can't stopwhere we stand today."
And after four years of economic recession, Spain's telecoms sector looks set for a period of consolidation, industryexecutives and bankers predict.
Most immediately cable operator Ono is preparing for apossible share market listing and Vodafone has also expressed aninterest in buying it as part of a move towards bringing fixedand mobile telecoms services together.
The rising popularity in Spain of deeply discountedall-inclusive bundles of fixed and mobile phone, television andbroadband services, which market leader Telefonica began pushing in late 2012, has hit Yoigo hard.
In 2013 TeliaSonera's Spanish business had a profit marginat the level of earnings before interest, tax, depreciation andamortisation (EBITDA) of 7.3 percent on net sales of 9.5 billioncrowns, and had a book value of 2.549 billion Swedish crowns($392 million) as at the end of 2012.
TeliaSonera sought to sell Yoigo in 2012 but bids fromVodafone and Orange were dismissed as too low.
But Dennelind says the company now has more options."TeliaSonera has a good financial position, which gives us someflexibility if and when opportunities arise," he said.
Analysts at Berenberg bank estimate that a purchase ofJazztel could cost TeliaSonera about 3.1 billion euros, takingits net debt to EBITDA ratio to 2.3 times.
"TeliaSonera can afford this deal," the analysts said.
Dennelind declined to say how much time management has inSpain to do something with Yoigo but expressed a sense ofurgency. "I am very impatient on building a future proofbusiness. That is my nature."
Shares in TeliaSonera closed down 0.2 percent at 50.15crowns by 1613 GMT on Tuesday, valuing the company at around$33.3 billion. The shares are down 6 percent so far this yearcompared with a 3 percent fall in the Stoxx Europe 600 telecomssector index.
