* Spanish firm signs deal to use AT&T infrastructure
* Deal seen as Telefonica lifeline in battle with America Movil
* To cut Telefonica costs by $254 mln/yr after 3-yr transition (Adds comment from analyst, Telefonica and AT&T executives; updates media slug)
By Julia Love
MEXICO CITY, Nov 21 (Reuters) - Spanish telecoms giant Telefonica has struck a deal to use some of U.S. rival AT&T's infrastructure in Mexico, a move analysts said would better position both to compete with the market's juggernaut, billionaire Carlos Slim's America Movil.
Under the agreement announced on Thursday, Telefonica will use AT&T's wireless 'last-mile' equipment - the final link of telecom networks that delivers service to consumers through towers, antennas and fiber-optic cables.
After a three-year transition period, Telefonica will see savings of 230 million euros ($254 million) per year, as well as a reduction in net debt of 500 million euros. Financial terms of the deal with AT&T were not disclosed.
Analysts framed the deal as a lifeline for Telefonica in Mexico, where the company has long struggled to gain traction. Despite a 2013-14 reform intended to lessen its dominance, America Movil still holds nearly two-thirds of mobile lines in Mexico, according to data from telecoms regulator IFT.
AT&T, too, has failed to significantly dent America Movil's market share since it spent billions to enter the country in 2015 by buying two local carriers.
The agreement will give both Telefonica and AT&T a boost in a brutally competitive market, said Roger Entner, an analyst at Recon Analytics.
"It's the two upstarts going up against the big guy," Entner said. "You need to find all the friends that you can when someone has such a dominant position."
Telefonica Mexico Chief Executive Officer Camilo Aya told reporters the deal with AT&T was not exclusive, meaning the Spanish firm remains free to use other companies' infrastructure. Telefonica will retain control over its operations, and its traffic will remain separate, he added.
Aya said the agreement was part of a global trend to better position companies against rivals.
"You need a lot of scale to compete in this business," Aya said at an event in Mexico City.
Telefonica has been outspoken about the difficulties it has faced in Mexico. Miguel Calderon, vice president of regulation at Telefonica Mexico, said the deal would ensure the firm remained in the country.
The Spanish company has also complained about the cost of spectrum in Mexico, lobbying the government for a discount. After the deal with AT&T is complete, Telefonica will no longer need to pay for spectrum, driving down costs.
Monica Aspe, vice president of external affairs for AT&T Mexico, described the accord as an innovative agreement between telecom companies.
"What this agreement does is strengthen the ability to compete," she said. (Reporting by Julia Love; Additional reporting by Jessica Jones; Editing by David Alire Garcia, Chizu Nomiyama and Kenneth Maxwell)