MILANLONDON, Feb 27 Reuters Vodafone will likely hold a minority stake in a combined entity with Swisscom39;s Italian unit Fastweb if a deal is reached on a potential tieup of their Italian operations, three people familiar with the matter said.

Vodafone39;s Chief Executive Margherita Della Valle said earlier this month the British group was in active discussions in Italy, days after rebuffing a proposal by rival Iliad to create a 5050 joint venture in the country.

Multiple sources have identified Swisscom39;s Fastweb as the other party in the talks.

The potential deal being discussed would see Vodafone take a minority stake in the combined entity, which would take its debt off Vodafone39;s balance sheet, said the people, who declined to be named because talks are not public and are ongoing.

Spokespeople for Vodafone and Swisscom declined to comment.

Operators in Italy are studying ways to consolidate a market grappling with shrinking revenue and margins, which is depriving investors of returns on their capital.

A deal with Fastweb would create Italy39;s secondlargest fixedline broadband operator with a strong presence in the prized business segment.

It would also face lower regulatory hurdles than a combination with Iliad but offers lower potential synergies, according to analysts.

Iliad, majority owned by French billionaire Xavier Niel, is continuing to push consolidation in Europe, and on Monday it unveiled an agreement to buy a 19.8 stake in Swedish telecoms…