Colombian state-controlled telephone company Empresa de Telecomunicaciones de Bogota SA (ETB.BO) will select a partner to inject fresh capital in return for a controlling stake in the company around Oct. 16, ETB said in a filing to the local market regulator.

The company will sell new shares, equivalent to a 36.6% stake, to the new partner, who will be selected during a public auction to be held around Oct. 16. The winner will be the one that offers the highest price per share, Juan Carlos Alvarez, an investment banker with the local unit of Santander SA (STD), which is handling the process.

The city council, which currently controls the company, will change its current shares into non-voting shares so the new partner will control the company, Alvarez said.

"Unless the bidder decides to submit an offer without operating management and becomes a capitalist partner," he added.

At the same time, ETB will sell other shares to the current minority holders at the same price so that they avoid the dilution of their stakes.

The new partner will have to buy the shares the minority holders don't.

The partner will also commit to hold a tender offer to buy minority shareholders' stakes at the same price as offered in October.

In the case all minority shareholders decide to leave the company, the partner would end up with a stake close to 49%, but with a majority of voting shares, the filing said.

To be able to bid, the new partner will have to operate at least 1.5 million fixed lines or 5 million mobile lines, and at least 100,000 Internet connections. The future partner also must have booked at least $1 billion in total revenues in the last fiscal period.

ETB needs capital to face rising competition from Spain's Telefonica SA (TEF) and Mexico's Telefonos de Mexico SA (TMX).

ETB's revenues from fixed-lines and long distance calls are stagnating as the three firms are now offering fixed-lines, Internet connection and cable TV bundled together, a service known as triple-play.

ETB is controlled by the Bogota city council, which holds 88.4%, while minority shareholders have the remaining 11.6%, according to the company's website.

Shares of ETB ended 3.7% up on Tuesday at 942 Colombian pesos ($0.45), while the IGBC stock index rose 0.1%.

-By Inti Landauro, Dow Jones Newswires; 57-1-610 70 44 Ext. 1131; colombia@dowjones.com