* AT&T says will not bid for Vodafone in next six months
* Follows reports AT&T meeting regulators over a bid
* Vodafone shares fall as much as 7 percent
* Analysts say AT&T could return at a later date (Adds details of AT&T meeting with regulators, analyst comment,share price updates)
By Kate Holton and Sophie Sassard
LONDON, Jan 27 (Reuters) - AT&T on Monday ruled out abid for Britain's Vodafone after Britain's takeoverwatchdog asked the U.S. phone company to clarify its positionfollowing reports that it had sounded out European regulators onthe prospects of a merger.
AT&T's statement means it cannot make an offer for Vodafonefor at least six months, unless the British company invites itto do so or a third party enters the fray.
Banking sources said that while an uproar over the U.S.National Security Agency's electronic surveillance program and ayear-long rally in European telecom shares may have disruptedprospects for a deal any time soon, many think it could stillhappen.
AT&T, the second-largest U.S. mobile operator, had sparkedspeculation it could be interested in a potentially 70 billionpound-plus ($115 billion) deal for Vodafone after its CEO saidin October there was a "huge opportunity" in Europe to invest inmobile broadband.
AT&T Chief Executive Officer Randall Stephenson met EuropeanUnion telecoms chief Neelie Kroes at the World Economic Forum inDavos, Switzerland, last week, according to a person familiarwith the matter, who said they discussed high-speed wireless andcross-European opportunities as well as the NSA spying scandal,but did not talk about any specific deals. AT&T declined todiscuss Stephenson's Davos meetings.
Vodafone's shares fell as much as 7 percent before endingdown 3.9 percent at 224.78 pence as some investors had hopedthat a deal process could start as early as February. AT&T'sstock was up 0.9 percent at $33.73.
Analysts also said a deal could still make sense for AT&T,which is facing a more competitive home market even as Europecould soon benefit from economic recovery and investment inhigh-speed mobile services that trail behind the United States'.
"I don't think this signals the end of AT&T's interest inEurope," said Atlantic Equities analyst Chris Watts.
One banker hoping to advise AT&T on any future Vodafone bidtold Reuters that the British group, which is in the process ofselling out of its U.S. joint venture, remained the perfectpartner for AT&T because of its presence across Europe.
AT&T was simply not ready to make an offer, the banker said,adding that matters had been complicated by former NSAcontractor Edward Snowden's leaking of the NSA's massive phoneand Internet surveillance program, which has sparked particularoutrage in Europe.
Before any bid, AT&T would have to win over itsshareholders, some of whom have questioned the wisdom ofentering fiercely competitive and highly regulated markets suchas Britain, Germany and Spain.
Another complication for AT&T is that it is unlikely to wantto run Vodafone's businesses in emerging markets such as India,South Africa and Turkey, which were hit last week by a selloffin their currencies.
Analysts said AT&T's reticence could provide a reality checkfor the wider European telecoms sector, which has surgedabout 24 percent in value over the past year compared with an 11percent rise in Europe's top share index. The sectorhas been lifted by a string of takeover deals, despite few signsof an improvement in underlying trading.
Another sector banker said a recent surge in Vodafone'sshare price due to the U.S. sale and speculation of a takeoverbid might also have deterred AT&T. Vodafone shares are up 38percent over the past year.
ADVANTAGES OF A DELAY
If it does not buy Vodafone, AT&T could instead look atother European operators, such as British market leader EE,according to bankers and analysts.
But Vodafone is seen as a better option than EE, which wouldgive AT&T much more limited exposure to Europe. Investors showedlittle sign of betting on such a deal on Monday as they pusheddown shares of EE's parents - Orange and DeutscheTelekom.
"A number of other potential targets might be accretive intheir own right (for AT&T) but wouldn't have the sort ofgame-changing potential Vodafone would have, if you think thatEurope is the right place to be," Watts said.
Citi analysts said a six-month delay in bidding for Vodafonecould have advantages for AT&T as the British company is due tocomplete the $130 billion sale of its stake in U.S. ventureVerizon Wireless around the end of February. This would giveinvestors time to value Vodafone's remaining business.
Analysts think that value is likely to settle around 60billion pounds, with a bid premium of around 20 percent takingthe price tag of any takeover deal to over 70 billion pounds.
Regulators would have also given their decision by then onTelefonica's takeover of KPN's German mobilebusiness, which is seen as a key test of whether competitionauthorities are more open to consolidation in Europe.
In addition, AT&T's Stephenson, who has promoted the need forregulatory changes in Europe, may have a better idea of movementon that front later this year.
A package of reforms intended to spur investment in networksand encourage cross-border services is under debate in theEuropean Parliament. On top of this, the current crop ofregulators, including Kroes, could be replaced at the end ofOctober.
M&A EVERYWHERE
A series of telecoms and cable industry deals has helpedfuel speculation that competition regulators could loosen theleash on mobile companies wanting to merge in Europe to helpthem cope with fierce competition that has driven down prices.
Vodafone itself has recently agreed to buy Germany's KabelDeutschland, and a person familiar with the situation said itwas also in talks to buy Spain's main cable operator Ono.
U.S. cable company Liberty Global on Mondayclinched a takeover of Ziggo in a deal valuing theDutch media and communications services provider and its debt at10 billion euros ($14 billion).
Espirito Santo analyst Robert Grindle, who downgraded hisrating on Vodafone shares last week, said AT&T may return onceit sees signs of trading in Europe starting to stabilise. "Wedowngraded because one of the issues was that we didn't think adeal would happen as quickly as people thought," he said.
($1 = 0.6060 British pounds) (Additional reporting by Paul Sandle, Leila Abboud, AnjuliDavies, Foo Yun Chee and Sinead Carew; Editing by Mark Potterand Jan Paschal)
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