NEW YORK ( The Deal) -- Spain's Telefonica SA on Tuesday, Sept. 24, agreed to increase its indirect investment in Italy's Telecom Italia SpA ( TI) in a mult-faceted agreement that will allow its financial investor partners to begin stepping away and keep potential suitors at bay. Telefonica, of Madrid, said it would initially pay €324 million ($437.3 million) to increase its stake in Telco SpA to 66% from 46% in non-voting shares and spend €424 million to buy Telco bonds . Telco is a consortium of investors that owns 22.4% of Telecom Italia. In the second phase, Telefonica would pay an additional €117 million to increase the investment to 70%. At the same time, it would convert the non-voting stock into voting shares, giving it control of Telco and the right to appoint half its board. The Spanish phone company will also have the right to buy all the Telco stakes of its partners, Italian financial services companies Intesa Sanpaolo SpA, Mediobanca SpA and Assicurazioni Generali SpA. The investors have been meeting to discuss the fate of both their venture and Telecom Italia, which is saddled with €28.8 billion in debt and faces a possible downgrade on its debt to junk. Analysts expect the company to soon sell its TIM Mobile Brazilian unit, which accounts for about 40% of sales, to avoid the downgrade. Telecom Italia's woes has made it a popular target. A 2007 approach from AT&T ( T) and Carlos Slim's Mexican phone company America Movil SAB de CV led to the formation of Telco. At the time, the investors paid €4.1 billion for an 18% stake to keep the company European. More recently, Egyptian telecom investor Naguib Sawiris, the founder of Egypt's Orascom Telecom Holding SAE, last year offered to pay €5 billion for a minority stake but was turned away. Earlier this year Hong Kong phone company Hutchison Whampoa Ltd. failed in a bid to buy Telecom Italia's cellular business and fixed-line customers. Telecom Italia is already working to carve out its fixed-line network and sell at least part of it to state bank Cassa Depositi e Prestiti SpA to raise money. It could also possibly sell its network of Italian cellular towers. Telefonica, which is working to strengthen its positions in Europe and South America, is the only Telco investor interested in staying with the company. Mediobanca has already said it wants out, and Generali has said it would wait for the right conditions.