* Deal would combine third, fourth place mobile groups
* Vimpelcom CEO says no guarantee deal will be reached
* Italy emerging from long mobile price war
* Vimpelcom Q1 sales hit by weak rouble (Adds Hutchison confirmation, share reaction, analyst comment)
By Anthony Deutsch, Danilo Masoni and Denny Thomas
AMSTERDAM/MILAN/HONG KONG, May 13 (Reuters) - Russia's Vimpelcom and Hong Kong tycoon Li Ka-shing's Hutchison Whampoa are in talks to merge their Italian mobile phone businesses in a joint venture, marking further telecoms industry consolidation in Europe.
"We are in discussions with Hutchison regarding a possible equal joint venture between 3 Italia SpA and Vimpelcom's subsidiary WIND Telecommunicazioni SpA," Vimpelcom Chief Executive Jean-Yves Charlier said on Wednesday in comments sent to Reuters.
"There can be no assurances that an agreement will be signed and any transaction would be subject to, among other things, achieving satisfactory debt levels and obtaining all required corporate and regulatory approvals."
The talks come as Hutchison is wrapping up its $15.4 billion purchase of Spanish firm Telefonica's British mobile unit, O2. Li's back-to-back telecom deals underline his keen desire to boost returns from European operations, which have trailed those from other parts of his ports-to-property empire.
Hutchison confirmed the talks in a statement to the Hong Kong stock exchange on Thursday..
"Hutchison has been disciplined in only doing deals that are accretive to earnings and cash flow, and we would expect that to be the case if a deal gets done with Wind," said Hong Kong-based Moody's Investors Service senior analyst Joe Morrison, who covers Hutchison.
The companies are still not yet close to signing a deal, said two sources familiar with the matter. No decision has been made on who would run the merged entity, said one, and Wind's high debts remain an issue.
While Wind has been taking steps to cut debt, and recently raised 693 million euros by selling some 7,000 radio masts in Italy to Spain's Abertis, its 9.65 billion euros ($11 billion) debt as of the end of last year has been an obstacle to a full takeover by Hutchison, one person familiar with the matter said.
Hutchison can avoid taking on the full debt burden with a joint venture structure, the person added. But a 50-50 joint venture would be a change of strategy for Hutchison, which has been buying up competitors across its European markets in the past two years, starting in Austria, then Ireland, and most recently in Britain.
Combining Italy's third-largest mobile network operator Wind with fourth-placed 3 Italia would cut the number of competing operators in Italy to three, as has already happened in Germany, Austria and Ireland, reducing competitive pressures and helping end a long price war. The two sides have been in on-off talks for well over a year.
But hammering out terms has proven difficult given the interests of Li and Vimpelcom's controlling shareholder, Russian billionaire Mikhail Fridman, whose LetterOne fund holds 47.9 percent of Vimpelcom's voting rights.
Bloomberg reported on Tuesday that the two sides had agreed that Wind's chief executive, Maximo Ibarra, would take the helm of the joint venture.
In October Vimpelcom said in a U.S. Securities and Exchange Commission filing that it had held unsuccessful talks over a joint venture in Italy, without naming the company involved.
However the structure could be an attractive option for both sides given their current situations, analysts said. Hutchison's balance sheet is stretched by recent deals and Vimpelcom wants to retain exposure to countries outside Russia.
Wind is larger and more profitable than 3 Italia, earning 4.6 billion euros in sales and 1.8 billion euros in operating profit last year. 3 Italia's annual sales were 1.73 billion euros and operating profit was 248 million euros.
Vimpelcom shares rose 4.5 percent at $5.79 in New York on Wednesday. Hutchison shares ended up 0.2 percent on Thursday.
Wind and 3 Italia would have 33.3 percent of the Italian market, according to end-December data from communications regulator AGCOM, compared with 32.1 percent for Telecom Italia and 27.5 percent for Vodafone.
But the three operators would be nearly even in terms mobile service revenues earned in the country, according to Citigroup.
Since European and national regulators have already approved the market consolidation in Germany, Ireland and Austria while requiring measures to protect competition, so analysts believe a deal could get approved.
In first-quarter results on Wednesday, Vimpelcom said sales in Italy slipped 6 percent to 1.1 billion euros ($1.24 billion), surpassing Russia for the first time.
Group revenue fell 30 percent to 3.52 billion euros ($3.98 billion) hurt by the weak rouble, while operating profit fell 33 percent to $1.4 billion. The company said it was on track to deliver its 2015 targets.
Vimpelcom has 218 million customers across Russia, Italy and a dozen emerging markets including Ukbekistan and Ukraine. It is owned by Norway's Telenor, which holds 43 percent of its voting rights, and Fridman, the Russian businessman.
$1 = 0.8762 euros Additional reporting by Pamela Barbaglia in LONDON and Donny Kwok in HONG KONG; Writing by Leila Abboud; Editing by Louise Heavens, Greg Mahlich and Kenneth Maxwell