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* Nine-month net profit down 9.4 pct
* Bundled packages key to turnaround prospects
* Strategy squeezes margins (Adds debt management detail, updates shares)
By Julien Toyer and Andrés González
MADRID, Nov 12 (Reuters) - Spain's Telefonica pointed to rising demand for its mobile, broadband and pay-TVdeals as evidence of a turnaround from its three-year slump asit posted falling revenue and profit in the first nine months ofthe year.
The trend echoed that at British and Dutch rivals Vodafone and KPN, which have started to benefit frominvestments in faster networks, though Telefonica's tradingimprovement may need a few more months to bolster the bottomline.
Telefonica, which has lost more than a third of its revenueand core profit in Spain as cash-strapped consumers reducetelecoms spending, is betting on the take-up of bundled packagescombining mobile and fixed-line phones, high-speed Internet andTV and on its heavy investment in fibre-optic networks.
The strategy comes at a price, however. Margins in Spain,which contributes 42 percent of revenue and 30 percent ofoperating income, have continued to fall, slipping 2.7 basispoints to 45.9 percent in the nine months to Sept. 30.
Europe's biggest telecoms group by revenue reported netprofit down 9.4 percent in the period to 2.85 billion euros($3.56 billion), just above analysts' forecasts. Operatingincome dropped 12.6 percent to 12.33 billion euros and revenueshrank 10.9 percent to 37.98 billion euros.
CURRENCY EFFECTS
Revenue and operating income were hit by weaker LatinAmerican currencies, but the effect eased between July andSeptember and the region's underlying performance remainedstrong.
In Brazil, where Telefonica bought broadband provider GVT inSeptember and is now considering bidding for assets of TIMParticipacoes, the currency effect was positive onthe quarter, boding well for the rest of the year.
Net debt, a weak spot in the past, was 41.2 billion euros atthe Sept. 30, already beating a year-end target of 43 billioneuros. However, the figure was 44.9 billion euros when takinginto account corporate moves not yet reflected in earnings.
In a conference call with analysts, finance chief Angel Vilasaid the company could soon issue more hybrid debt or sellassets to meet the target.
Shares in the company were little changed at 12.19 euros by1444 GMT but were outperforming a 1.6 percent fall in Spain'sblue-chip Ibex index. (1 US dollar = 0.8012 euro) (Editing by Louise Heavens and David Goodman)
