Telefónica, of Madrid, said it would list its O2 business in Germany and consider similar moves in Latin America, where it's the biggest wireless operator in Brazil.

The company was forced to act after Standard & Poor's cut its rating on Telefónica's debt a week ago to BBB as the sovereign debt crisis in Europe raised the cost of borrowing and threatened its prospects there. At the end of the first quarter, the company said it had net debt of €57.13 billion ($70.9 billion), with about €7 billion due annually through 2014.

"The question is whether this desperate move is to save its credit rating or is in preparation of a potential acquisition of Royal KPN NV's German E-Plus unit," wrote Nomura Holdings Inc. analyst Frederic Boulan in a note.

Although Telefónica's cash push comes just days after its downgrade, it also coincides with a recent KPN announcement that it had hired Goldman, Sachs & Co. and J.P. Morgan to review strategic options. The Dutch telecom is miffed at an approach from Mexican telecommunication heavyweight América Móvil SAB de CV, which wants to boost its KPN holding to 28% from 4.8%.

Analysts are expecting a consolidation in European markets where a flood of providers are keeping prices and profits low.

Telefónica CEO Cesar Alierta wracked up the debt with major acquisitions. Two years ago it paid €7.5 billion to buy out Portugal Telecom SGPS SA's part of their Brasilcel NV Brazilian cell venture. In 2005, he took European wireless provider O2 plc private in a $31.4 billion deal, giving the company a significant presence in the U.K. and Germany, Europe's biggest market.

The company's shares rose 2.5%, or €0.22, in morning Madrid trade to €9.06.