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Telecom Italia said on Thursday it had agreed to sell its Hansenet German broadband business to Telefónica of Spain for €900m ($1.3bn), ending months of haggling over price.

The sale will allow Telecom Italia to reduce its €35.5bn of net debt and is another step in the operator’s move to concentrate on its core markets of Italy and Brazil. The company said it also meant it would “make further tapping of the bond market unnecessary” to refinance debt

The purchase by Telefónica marks another expansion step by the Spanish operator as it seeks to mount a stronger challenge to Deutsche Telekom and Vodafone in the German market.

Telecom Italia had initially sought €1bn for Hansenet, a retail broadband supplier with about 2.3m customers and with revenues of €858m in the first nine months of this year. It was put up for sale after the Italian company decided its competitive position in Germany was not strong enough to justify further investment….

The sale of Hansenet “is part of a strategic approach of financial rigour aimed at enhancing cash flow generation and at shifting focus to core markets,” Telecom Italia said. The transaction is expected to close in the first quarter of 2010.

Telecom Italia announced the sale as it reported a 5.6 per cent fall in revenues in the third quarter of this year to €6.8bn. Earnings before interest, tax, depreciation and amortisation (ebitda) were 1.1 per cent lower at just under €3bn.

Franco Bernabé, Telecom Italia chief executive, said the effectiveness of the company’s push to overhaul the composition of its revenues and to continue to control costs was reflected in the stability of the group’s organic ebitda and a “significant improvement” in margins, which reached 44 per cent in the third quarter of 2009.

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By Vincent Boland in Milan