MADRID (Reuters) - Spain's Telefonica beat forecasts with a 79% surge in first-quarter net profit on Thursday as higher fees boosted revenues, costs fell on job cuts in Spain and lower energy prices, and its low-margin handsets business shrank.

The telecoms company was able to raise fees on the back of inflation in Spain, Brazil and most of Latin America, and so benefit fully from lower energy prices, Chief Operating Officer Angel Vila told Reuters.

He also cited efficiencies such as cutting about 2,300 jobs in Spain and lower energy consumption when replacing old copper networks with optic fibre.

"Our revenue growth is healthy as it comes from services while the business of selling handsets, which comes with thin margins, is losing pace," Vila said.

Telefonica made a net profit of 532 million euros ($571 million) in the quarter on revenues of 10.14 billion euros. Analysts had expected a profit of 388 million euros on 10.07 billion of revenues, according to consensus forecasts provided by the company.

Adjusted earnings before interest, taxes, depreciation and amortization, a measure of profitability, rose 1.9% to 3.21 billion euros.

The performance was in line with the expectations of the management, who reiterated the targets for the full year.

Telefonica shares were little changed at 1120 GMT.

Vila added that since Telefonica had lost its dominant position at home following the recent merger between the Spanish unit of Orange and smaller rival MasMovil, it may look at merger opportunities, but "we have assets with the scale to keep competing and leading the market".

($1 = 0.9309 euros)

(Reporting by Inti Landauro; Editing by Janane Venkatraman and Mark Potter)

By Inti Landauro