LONDON, Dec 15 (Reuters) - Telefonica is exploring a possible offer for a unit of Brazil's Oi that provides broadband fiber services to retail and business customers, four people with knowledge of the situation said, in a bid to expand in its second-largest market.

The board of Oi, which filed for bankruptcy protection earlier this year, hired advisers in October to study strategic options for its fiber broadband client base, called UPI ClientCo.

The Spanish telecoms group, which operates in the country through its listed subsidiary Telefonica Brasil , has been discussing its potential move with financial advisers, said three sources, who spoke on condition of anonymity.

Deliberations are still preliminary, and Telefonica has not yet approached Oi, they cautioned.

Telefonica Brasil CEO Christian Mauad Gebara said the company participates "in everything related to any opportunity in the fibre business" when asked about the sale of Oi's assets during the third quarter results presentation in November.

Other competitors in the Brazilian market, such as America Movil's Claro and TIM, may also consider offers, two of the sources said.

Telefonica and America Movil and declined to comment. Telecom Italia was not immediately available to comment. A spokesperson for its Brazilian subsidiary declined to comment

Oi originally hoped to sell 40% of ClientCo in 2025 for 4.8 billion Brazilian reais ($976.50 million) under a restructuring plan presented in May, implying a valuation of more than $2.4 billion for the business.

However, the unit – which is now understood to be entirely for sale – is likely to be valued by bidders at a fraction of that targeted valuation, given Oi's difficult financial position and the challenges any new owner would face in moving clients to its own networks, two of the people said.

A spokesperson for Oi declined to comment on the bidders, but said the company agrees with the valuation outlined in the May plan and has not made a decision on what percentage of UPI ClientCo to sell as negotiations with creditors are ongoing.

Oi entered bankruptcy protection again in March this year after having emerged from a similar proceeding last December, more than six years after filing for what was then Brazil's biggest ever judicial recovery process. It had 60 days to present a recovery plan, according to a securities filing.

In September it secured $300 million in debtor in possession financing from BTG Pactual, which is advising on the sale of UPI ClientCo.

In 2020 Telefonica Brasil agreed to acquire Oi's mobile operations in a joint bid with TIM SA and Claro. Brasil is one of Telefonica's core markets, with expected revenues of 9.7 billion euros in 2023, according to a recent research by JPMorgan.

($1 = 4.9155 reais) (Reporting by Pablo Mayo Cerqueiro, Andres Gonzalez and Amy-Jo Crowley; Additional reporting Anousha Sakoui and Elvira Pollina;Editing by Elaine Hardcastle)