Telefonica SA (TEF), Spain's largest telecommunications company by market value and customers, Wednesday made an all-cash bid for Brazilian telecommunications company GVT Holding SA (GVTT3.BR) that could amount to a total investment of around $3.7 billion, potentially trumping an earlier offer from France's Vivendi SA (VIV.FR).

In a filing to the Spanish market regulator, Telefonica said its Brazilian Telesp unit would offer 48 Brazilian reals ($27.20) a share for GVT, topping the BRR42 a share offer made by Vivendi Sept. 9.

Brazil is a lucrative market for telecommunications operators due to its rapidly expanding economy, large population and relatively-low mobile and broadband penetration rates compared with mature markets in Europe or the U.S.

"The price Telefonica is offering seems too high, but if Vivendi gained a foothold in Brazil, this would be a blow and is best avoided," said Norbolsa analyst Adrian Serrano.

A Vivendi spokeswoman said she wasn't immediately able to comment on Telefonica's offer for GVT. Vivendi had looked to Brazil as part of its strategy to invest in fast-growing emerging markets. The Paris-based company, which owns record company Universal Music and videogame maker Activision Blizzard, also owns about 50% of Maroc Telecom SA of Morocco.

Telefonica said the offer was contingent on it acquiring 51% of GVT's shares and the Brazilian regulator approving the deal.

"GVT would expand our footprint in Brazil and is complimentary to our existing operations," a Telefonica spokesman said.

Telefonica already operates fixed line and broadband provider Telesp, but its presence is limited to the state of Sao Paolo. GVT is an alternative operator that started business in 2000 and operates in Brazil's Midwest and Southern regions, as well as some Northern states. GVT has around 2.3 million customers and had sales of $800 million last year.

Telefonica also operates Brazilian mobile operator Vivo with Portugal Telecom SGPS SA (PT) and has relied increasingly on the strong revenue growth in its Latin American markets as the economic downturn hits its mature markets in Europe, especially in Spain.

At 1523 GMT, Telefonica shares traded 1.6% lower at EUR19.04, lagging the overall Spanish market.

Company Web site: www.telefonica.com

-By Jason Sinclair, Dow Jones Newswires, 34 913958127, jason.sinclair@dowjones.com

(Alastair Stewart, Ana Garcia and Ruth Bender contributed to this article.)