UPDATE 2-Telefonica replaces German chief with Czech boss

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By Kirstin Ridley

LONDON, June 21 (Reuters) - Rudi Groeger, the outspoken head of Telefonica's struggling German business, is standing down and will be replaced by a colleague analysts say has done a "spectacular job" in the Czech Republic.

Telefonica O2 Europe, Telefonica's non-Spanish European telecoms business, said on Thursday Groeger would be succeeded as chief executive by Jaime Smith, head of its Czech unit -- a star performer in the group's portfolio.

Smith has been credited with transforming the Czech operations after integrating the country's largest fixed-line and mobile businesses, launching new broadband products such as IP (Internet protocol) television and turning the business around.

Telefonica insiders denied newspaper reports that Groeger -- who will from October chair a newly-created supervisory committee "to provide insight and advice on the German market" -- had been under pressure since reporting poor quarterly results in May.

"He's done a good job but the business is going through a tough period ... Groeger will continue to provide his point of view from the advisory committee," a source at the group said.

But analysts said they were not surprised at the move. The German business has seen its first drop in quarterly revenues and Telefonica, they said, was more used to beating expectations and raising guidance than disappointing the market.

OPERATIONAL MOMENTUM

"I think patience was running thin," said one.

"The fact is that the German business has disappointed and the strategy put into place before Christmas has had little effect through Q1 ... At the same time, Jaime Smith has done a pretty spectacular job taking an investment people thought was fairly questionable and creating some good operational momentum."

But he emphasised that Smith had faced a tough task in Germany, Europe's largest telecoms market.

"There is unlikely to be any quick solution in Germany and there will probably be one to two quarters of pain before we see any meaningful recovery," the analyst said.

O2 Germany, which has struggled to integrate its fixed-line unit into a core mobile business while facing a host of new rivals that have sent prices crashing by around 20 percent, plans to cut about 200 jobs this year to help save 80 million euros ($107 million).

Margins at Telefonica's Czech unit come in at 46.6 percent -- well above the 19 percent last recorded by its German sister.

Smith will be replaced by Salvador Anglada, vice president of the unit's consumer division. Smith and Anglada will report to Peter Erskine, chairman and CEO of Telefonica O2 Europe, and will sit on the board of directors at Telefonica. (Additional reporting by Elisabeth Oleary in Madrid) ($1=.7446 Euro)

Keywords: TELEFONICA O2/GERMANY