Telefonica is confident it will be able to strengthen its alliance with China Unicom following the restructuring of China's state controlled telecommunications industry, a Dow Jones report said.
The Dow Jones report further quoted Telefonica COO Julio Linares saying 'the potential is brutal, we think the alliance in China is only going to grow.'
China Unicom is due to acquire China Netcom Group this year in an all-share transaction.
Telefonica has a 5% stake in China Netcom, but market sources say it has gained approval from the Chinese government to increase the stake to around 7%, even after its stake is diluted following the takeover, the Dow Jones report said.
The same market sources say Telefonica is likely to raise its stake eventually to 10% in China Unicom.
Telefonica is Spain's largest telecommunications company by market value and subscribers.