Spanish telecoms giant Telefonica (TEF.MC) stuck doggedly to ambitious shareholder return targets on Friday even while 9-month profit fell a more-than-expected 69 percent in what the group described as a challenging operating environment.

The euro zone's biggest telecom in terms of market capitalization announced a 69 percent fall in net profit to 2.73 billion euros ($3.71 bln) on a 5.4 percent rise in revenues to 46.67 billion euros in the January to September period, with net profit around 300 million euros below average expectations.

Even so Telefonica reiterated earnings targets for this year and confirmed its shareholder remuneration policy, widely questioned in the investment community. Analysts say that given roughly 55.4 billion euros in group net debt, ongoing investment commitments and an adverse environment for asset sales, the targets are not reachable.

Telefonica has promised a dividend of 1.75 euros per share in 2012 and has set a minimum shareholder remuneration target of 1.75 euros per share from then on.

It's shocking they haven't lowered their guidance, said a London-based analyst who requested anonymity.

Profit was dented by a 2.7 billion euro charge to cut up to 6,500 workers at its Spanish unit as competing phone companies make deep inroads into its Spanish customer base.

In a statement, Telefonica blamed a tough regulatory environment and challenging business conditions amid sluggish economic growth, but said it was confident that a new business structure announced in September would soon produce efficiency improvements.

($1 = 0.736 Euros)

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