The Spanish telecom giant Telefónica looked poised yesterday to join the fight for Telecom Italia, previously the object of a hotly contested joint bid by AT&T of the US and América Móvil of Mexico.

According to local reports, Telefónica is set to make a play for Olimpia, the holding group that controls 18 per cent of the Italian telecommunications company, using the €2.8 billion (£1.9 billion) in proceeds from its sale of Airwave O2 , the UK emergency radio network.

The acquisitive Spanish company is also hoping to raise another €3 billion from the sale of Endemol, the Netherlands-based TV production company that produces Big Brother.

AT&T and América Móvil had been offering €2.82 a share for 66 per cent of Olimpia and are in exclusive talks until the end of the month. However, the US telecommunications firm pulled out after the intervention of Romano Prodi, the Italian Prime Minister, who urged local banks to launch a rival bid to keep the company Italian.

Carlos Slim, the Mexican owner of América Móvil, is now in exclusive talks to buy Olimpia until April 30. However, Spanish investors believe the Italian Government may favour a bid by Telefónica, particularly if it agrees to be a passive investor.

The resurgence of protectionism from Italy’s Government brought a sharp rebuke from the US ambassador in Rome yesterday, who said that Italy would remain the laggard of Europe if it continued with such manoeuvrings. “It would be best to focus less on who wants to invest and more on the fact that Italy is in last position among European countries in terms of growth of GDP, salaries and productivity,” US envoy Ronald Spogli wrote in Corriere della Sera.

The European Commission also warned Italy against “protectionist pressures”. “I am convinced that we need to remain vigilant,” Viviane Reding, EU Telecoms Commissioner, said in a letter to colleagues. “Indeed, this episode shows that there are still protectionist pressures in member states that affect the telecommunications sector as well as the other strategic economic sectors,” she said.

Telefónica is understood to be principally interested in Telecom Italia’s Brazilian mobile phone unit, TIM Brasil. Spanish media claimed that Telefónica was prepared to pay at least €3 a share for 66 per cent of Olimpia, which would give it 12 per cent of Telecom Italia.

Telefónica declined to comment on its plans, or confirm how it would spend the proceeds from Airwave and Endemol.

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