Spain's Telefonica is in talks with Dutch telco KPN in what could result in a merger of the two giants according to Spanish press reports. Telefonica has confirmed that it is in negotiations with KPN on a "variety of matters", but sources were unavailable to comment further.

A report in Spanish newspaper El Mundo over the weekend suggested that a joint company would be owned 60% by Telefonica and 40% by KPN. El Mundo also suggested that North American operator Bell South could become a third partner in the new company. Telefonica and KPN's stock values rose in response to the reports.

Telefonica has been rumoured in recent months to be in on-again/off-again merger talks with both British Telecom and Deutsche Telekom. The Spanish company made headlines across Europe in March when it bought out Dutch entertainment giant Endemol. KPN had also considered buying Endemol but reportedly pulled out because the price was too high.