Telefónica has moved to unwind its sprawling global telecoms network after the Spanish company revealed a major overhaul of its business that leaves its future in Latin America in doubt.
The company said it would focus its investment on its domestic market, Brazil and the UK and Germany where it trades under the O2 brand. The remaining eight Latin American markets in which it operates, including Mexico, Colombia and Argentina, will be carved out into a separate unit and earmarked for potential sale.
Two new operating businesses — Telefónica Tech and Telefónica Infra — will also be created as part of the overhaul that the Spanish group, which has €38bn of net debt, expects to boost its profit by €2bn by 2022.
José María Álvarez-Pallete, chairman and chief executive of Telefónica, said the telecoms company needed to reinvent itself in an age of technological disruption. “Our sources of revenue are exhausted,” he said. “Technology is changing everything . . . we have to build our own road forward.”
The move reverses Telefonica’s strategy of driving growth in Latin America to offset a sluggish Europe market. Mr Álvarez-Pallete ran the international division of Telefónica for a decade, leading a rapid expansion of the business that grew to account for more than half of the group’s overall revenue earlier this decade.
Yet in 2019 the situation has reversed. Telefonica’s four largest markets now account for 63 per cent of its total customer base, as well as 80 per cent of its revenue, profit and operating cash flow. The new strategy is designed to concentrate its resources in its most valuable markets.
“The traditional way to grow is no longer valid . . . we’re looking at all options,” said Mr Álvarez-Pallete.
Telefonica’s shares have more than halved since the summer of 2015, but the company said the overhaul was not a reaction to that.
Jefferies analysts value Telefonica’s Hispanic networks in Latin America outside Brazil at €11bn but say that rises to €14bn based on the recent sale prices of other assets sold by the Spanish company in the region.
It has already agreed to sell two smaller networks in Central America. The group tried to sell its O2 mobile network in the UK, but met regulatory opposition and was linked with a listing of the business prior to Brexit. The company said a no-deal Brexit would not change its decision to keep O2 as a core part of its new strategy.
Pooling its technology resources in areas including cyber security and artificial intelligence under the new Telefónica Tech is reminiscent of the 2011 creation of Telefónica Digital.
The London-based division was set up as a growth engine for the Spanish company under the leadership of former O2 chief executive Matthew Key. The business, which had 2,500 staff, was unwound by Mr Álvarez-Pallete in 2014 with the operations reintegrated into the main Telefónica business.
Telecoms companies including Vodafone, Deutsche Telekom and Orange are carving out their infrastructure assets into separate businesses. Telefónica sold a 40 per cent stake in its Spanish infrastructure arm Telxius to KKR in 2017 for €1.3bn to cut debt. It said there are towers opportunities and investment in fibre networks outside of Telxius that it could pursue after creating an infrastructure company.