(Bloomberg) -- Spain’s government has bought a 3% stake in Telefonica SA as it seeks to counter Saudi Telecom Co.’s presence in a company it considers strategic.

The Spanish state-holding Sepi has bought 175 million shares — a position worth about €698 million ($756 million) at Monday’s closing price, according to a regulatory filing. Telefonica rose 0.4% at 9:43 a.m. in Madrid.

The acquisition is the first step in the government’s plan, made public in December, to reach a stake in Telefonica of as much as 10%. The government decision came as a reaction to Saudi-controlled STC’s own plan to buy 9.9% of the the Spanish telecom operator, disclosed in September. 

Spain considers Telefonica a strategic company and Sepi’s plan aims to provide it with “greater shareholder stability.” The deal is a major shift for Spain, which has typically been more reluctant than neighboring nations to take ownership of corporations.

Madrid deems Telefonica of strategic importance because it provides services to the military, security forces and the defense ministry. 

STC has spent €2.1 billion acquiring a 4.9% stake in shares, and another 5% through financial derivatives. The Saudi firm needs government approval to own more than 5%.

Other major Telefonica shareholders include Blackrock Inc., and lenders Banco Bilbao Vizcaya Argentaria SA and Caixabank SA, both of which have held their stakes as industrial investment for more than two decades. Caixabank on Monday reduced its stake after partially settling a hedge.

(Rewrites throught.)

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