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Telefonica is Spain's main telecoms operator, with an extensive fixed line service at home and in Latin America, and three of the world's biggest mobile brands in Movistar, Vivo and O2. The group has established an important position in the international market through a series of high profile and aggressive deals. It became the leading telecoms business in Latin America following the purchase of a clutch of separate operators covering several separate countries across the region, and consolidated that position in 2010 by taking full control of Vivo of Brazil, the region's single biggest mobile service by subscribers. The group also became a leading force in other European markets through the acquisition of O2, a leading operator in the UK, Germany and other countries. A move into the media business proved less fruitful. During the 1990s, Telefonica acquired stakes in several broadcast and television production companies, and merged its Terra Networks internet business with Lycos of America to form a short-lived online giant. Most of those businesses were later sold or abandoned. Telefonica re-established its media credentials in 2014 by taking control of Spain's leading pay-TV service.
Who handles advertising? Click here for agency account assignments for Telefonica. Including unmeasured media, the company declared its own total advertising costs in 2016 as €1.26bn ($1.4bn).
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For the most part, Telefonica proved one of the more consistently astute of the European telecoms companies in the 1990s, establishing a dominant position in Latin America with a series of smart deals. Its internet and media strategy was less successful, but at least didn't prove as disastrous as, for example, Vivendi's. Until comparatively recently the group tended to concentrate on Spanish or Portuguese-speaking markets, but after 2005 it began to flex its muscles in other territories as diverse as the UK, Germany, Italy, the Czech Republic and China. Though the element of risk is greater, these deals did deliver a broader financial base to lessen the group's heavy reliance on domestic or Latin American revenues. However, Europe's debt crisis and the recession in Europe, especially Spain, created some financial problems for the group after 2010. Selected assets have been sold to pay down debt.
As a result of its dominant position in Spain and Latin America, Telefonica is the leading telecommunications company in the Spanish and Portuguese-speaking world. It is one of the world's biggest wireless operators operating under the Movistar, Vivo and O2 brands, and serving a combined total of 350m wireless subscribers by the end of 2016. Because of its exposure to developing markets, the majority of these (still 65%) are pre-paid, and smartphone penetration is comparatively low at 27%. More recently, Telefonica has taken steps to reduce its presence in non-Hispanic markets. Though Germany will remain, the group has been seeking an exit route from the UK, so far without success.
The group currently has several regional regional divisions, one apiece for Spain, Germany, the UK and Brazil, with another covering all remaining Latin American markets. Each takes responsibility for all local fixed line, mobile and other businesses. An additional division, Telefonica Digital, created in 2011, manages new growth-oriented services on a global basis, such as cloud storage, mobile advertising and partnerships. A separate global resources unit is responsible for IT, network operations and other shared services.
Telefonica Espana is the dominant fixed line service in Spain, and now also includes the group's internet business. By the end of 2016, it managed 9.7m fixed connections (down almost 3% on the year before), and almost 6.1m broadband subscribers (up almost 2%). It has faced significant erosion of its position, especially in fixed line, from other suppliers (such as cable operator ONO and international companies such as Tele2, BT, Orange and Deutsche Telekom). However its position in its domestic market is stronger than many other European rivals in theirs. Telefonica claimed an 83% share of Spain's fixed line retail market in 2010, only slightly reduced from earlier in the decade.
The group offers wireless service under the Movistar brand. It is Spain's leading cellular phone service by a considerable margin, with 17.2m customers at the end of 2016 and almost 31% share. (Rivals include Vodafone, Orange and TeliaSonera's Yoigo). Since 2009, the group has dropped the corporate Telefonica name for fixed line and broadband services in Spain. Instead, it markets its services under the general Movistar banner, along similar lines to Orange. Towards the end of 2012 it introduced a new service, Movistar Fusion, which bundles landline, mobile telephony and fixed and mobile broadband, and even television, in a single product and all on the same bill, in most cases at lower rates than if purchased individually. More than 4.3m customers had signed up by the end of 2016.
In Spain, Telefonica dominates the broadband internet market, with around 45% market share. However the group was charged in 2006 by EU regulators with anti-competitive practices in the broadband sector and was forced to open up some of its infrastructure to competitors. The group offers internet-based pay-TV and other bundled services under various banners including Imagenio. In 2009, the group agreed to acquire the German operations of Telecom Italia's Alice service - which includes the former AOL Germany business - for €900m. That deal establishes Telefonica as the #3 in Germany's internet market behind Deutsche Telekom and United Internet, with around 2.2m subscribers.
At the end of 2009, Telefonica paid $207m for US company Jajah, which develops private label VoIP services for other companies. Clients include Yahoo, whose own VoIP service it manages under contract. That business now operates under the new name of TU.
Other Spanish subsidiaries include Telefonica Telecomunicaciones Publicas (TTP) which operates the country's 100,000 public telephone kiosks; and the group sells telecommunications equipment through a network of over 1,000 Telefonica branded retail outlets throughout Spain.
During the 1990s, Telefonica acquired a substantial collection of businesses involved in television and radio broadcasting and production. However, the economic downturn of 2001 stymied plans to float these off as a separate group, and instead Telefonica spent several years selling off individual businesses piecemeal. Pay TV service Via Digital was merged into rival service Sogecable in 2002, to form Canal+ Espana, under the control of media company Grupo Prisa. Telefonica continued to reduce its shareholding, and eventually forced Prisa to buy out its remaining shares in 2007. Two years later it bought its way back in again, reacquiring a 21% stake for €470m. It agreed to buy out Prisa again as well as minority holder Mediaset of Italy in 2014 for just over €1.0bn. The local Canal+ service was subsequently merged into Telefonica's existing Movistar TV broadcast service to create Movistar+. It is the leading pay-TV service in Spain with around 3.7m cable and satellite subscribers.
Combined revenues from Spain in 2016 were €12.41bn, down from almost €21bn six years earlier, reflecting the impact of Spain's economic problems on consumers. Unlike almost any other developed market, fixed line is still the most lucrative business in Spain, accounting for around 70% of total revenues, compared to 30% from mobile.
Telefonica Europe was formed primarily by the acquisition of British mobile operator O2 at the end of 2005. It became the umbrella for wireless services in several countries, and a small fixed line offering (see separate O2 profile). However operations in several of these markets have been or are being sold in order to pay down debt. By the end of 2014, only Germany and the UK were left in the portfolio. The UK too was set to be divested by the end of 2016 through sale of the local business to Hutchison 3. However the deal was blocked by regulators. Combined revenues from Telefonica Germany in 2016 were €7.46bn, with another €6.82bn from the UK.
In South America, Telefonica Latinoamericana is the undisputed market leader in the region with fixed line, internet, cable and wireless interests throughout the continent. It is the leading mobile operator in Argentina, Chile and Peru and also has a major presence in ten other countries in the region, including Colombia, Ecuador, El Salvador, Mexico, Uruguay and Venezuela. However its biggest market by far is Brazil.
For several years, the group's biggest single business in the whole region was Telesp, which offered fixed line and broadband services to Brazil's major city of Sao Paulo and its surrounding area. However the group was also part-owner of the dominant mobile service in Brazil, Vivo. This was a shared umbrella for several regional Brazilian operators owned by Brasilcel, a joint venture between Telefonica and Portugal Telecom. Telefonica had tried for several years to take full control of the Vivo business, offering Portugal Telecom a series of ever-larger sums to sell its shares. That offer increased steadily from €3bn in 2007 to €6.5bn in June 2010. That last bid was accepted by Portugal Telecom's shareholders but, controversially, blocked by the Portuguese government. An even higher offer of €7.5bn was finally accepted and approved in July 2010. As a result, Telefonica was cleared to take full control of Vivo, merging it with fixed line business Telesp mid-year.
Although it led the mobile sector, Vivo then only ranked #3 in fixed line with around 19% share, behind Oi and America Movil. In 2014, Telefonica entered talks to acquire Vivendi-owned GVT, the #4 in the market. A deal was eventually agreed for €7.24bn in cash and stock. That merger was completed in 2015. The combination of Vivo and GVT catapulted Telefonica narrowly ahead of its rivals as the local leader in fixed line as well.
By the end of 2016, the group had 73.8m mobile customers in Brazil (of which 55% we pre-paid), and around 30.2% share. There were a further 14.3m fixed line subscribers and 7.4m broadband connections. Total revenues were €11.07bn in 2016, of which just over 60% came from mobile.
Other Latin markets are grouped as Telefonica Hispanoamerica. The group also has a dominant position in Argentina. Telefonica de Argentina is the exclusive provider of local and national long-distance telephone services in the southern half of the country, including half of Buenos Aires. It also has substantial mobile and broadband businesses (the latter under the Speedy brand), as well as a controlling stake in the country's biggest ISP, Advance Telecomunicaciones. In Chile, Telefonica controls leading operator Telefonica Chile and there are also controlling stakes in the local operators for Peru, Venezuela and other South or Central American countries.
Telefonica offers mobile coverage under the Movistar brand in around 12 Latin markets apart from Brazil. It has steadily built up a commanding position across the region with a series of deals. In 2000 the group paid $2.6bn to acquire from Motorola various mobile businesses in Mexico, now combined as Movistar do Mexico, with around 20m customers. In 2004, it bought the Latin American operations of US carrier BellSouth for $5.9bn, adding another 10m customers to its existing portfolio of local operators spread across 10 countries including Argentina, Peru, Chile, Venezuela, Colombia and Ecuador. Telefonica floated a small stake in the mobile business in 2000; it reacquired those shares during 2006 at a cost of around €3.5bn. Total mobile customers from other Latin American markets than Brazil were 115.3m users, more than three-quarters of them prepaid. Combined sales from other Latin markets were €12.34bn in 2016, of which almost 71% came from mobile.
Terra is a leading online portal in Spain and Latin America. It was for years the local equivalent (and rival) to the likes of AOL and Yahoo in their heyday. However the brand's status has been downgraded somewhat since the late 1990s, when Terra set out on an ultimately unsuccessful quest to become one of the the world's biggest internet companies. During the first internet boom Terra was spun out as a separate company, and mounted an ill-fated takeover of US search engine Lycos. Merged entity Terra Lycos had ambitions to be the world's most visited online destination, but persistently lagged far behind its American competitors in more lucrative English-speaking markets. From 2001 onwards the business suffered from the triple whammy of a weak internet sector, economic turmoil in its key region of South America, and the termination of a lucrative strategic alliance with Bertelsmann. In 2004 Telefonica sold the Lycos brand in all markets except Europe, and merged Terra back into its existing fixed line businesses.
Infrastructure for several of its mobile markets was merged in 2016 into a separate entity, Telxius. This houses the local wireless towers in Spain, Germany, Brazil, Argentina, Peru and Chile as well as thousands of km of underwater cable. In 2017, Telefonica agreed to sell a 40% stake in this business to investor KKR for €1.3bn.
The group also held for a while a small collection of other international interests, primarily in China and Italy. In 2005, the group joined the stream of multinational operators establishing a presence in China by purchasing what was then Netcom, the country's second-largest fixed-line operator at that point. Following the merger of Netcom and Unicom to create China Unicom, Telefonica increased its stake to around 10%, becoming that company's biggest foreign shareholder. Subsequent divestments and adjustments reduced that stake to 2.5% by the end of 2014. The strategic alliance remains, and Telefonica and China Unicom launched a joint venture in 2016 to offer data services to major multinational corporations in China.
In 2007, Telefonica also became the single largest shareholder in European rival Telecom Italia, acquiring the equivalent of a 10% indirect stake for €2.3bn. In a further series of deals agreed in summer 2013 it increased that stake to around 15%, and put pressure the Italian operator to sell part of all of its business in Brazil, where it is Telefonica's main competitor. However that plan was disrupted by Brazilian regulators who ordered the Spanish operator to reduce its holding. It cut back its holding to around 9% again in 2014. Most of those shares were later transferred to Vivendi of France in part-payment for GVT Brazil. It sold the last of its Telecom Italia shares in 2015.
In 2005, Telefonica floated a large shareholding in European TV production company Endemol, which controls several internationally successful TV concepts including Big Brother, Deal Or No Deal, Fear Factor and Extreme Makeover. However it indicated its desire to sell the remaining 75% holding in 2006. After negotiations with several partners (including such unlikely bidders as LVMH chairman Bernard Arnault), the shares were sold in 2007 to a consortium which included Endemol founder John de Mol. Telefonica received €2.6bn for its stake. Separately the group also owned for several years Atento, a leading telemarketing and call centre business with operations in 12 Spanish and Portuguese-speaking countries. That business was sold to private equity fund Bain Capital in 2012 for $1bn.
TPI Paginas Amarillas was the group's directory division with some 150 yellow pages directories and phone books worldwide in Spain and Brazil, Argentina, Chile and Peru. Products include the online version of Spain's Paginas Amarillas or Yellow Pages and Paginas Blancas or White Pages. The company launched search engine business Noxtrum in 2006. Telefonica floated a large minority shareholding in TPI in 1999, but retained a 60% stake. Those shares were sold in 2006 to Yell, the British directory services provider, for around €3bn.
The consolidation of Vivo pushed Telefonica's group revenues to record highs in 2010 and 2011. For the latter year, revenues rose 3% to €62.84bn before slipping back in 2012 to €62.36bn. However, following a 31% jump in 2010, net income plunged by almost half in 2011 and then by another 27% in 2012 to €3.93bn, mainly as a result of several large charges for restructuring and impairments. Revenues have continued to decline steadily since then, reflecting the group's various divestments, with occasional rebounds from year to year.
Revenues for 2016 were €52.04bn, down 5% in reported terms, largely as a result of exchange rates. Net profit almost quadrupled to €2.37bn; however the previous year included a huge charge against O2 in the UK, which continues to be held as a discontinued operation pending sale. Spain accounted for 24% of group revenues (compared to 60% in 2004), and Latin America for over 45% (almost half of that from Brazil). Germany contributed 14% and the UK 12%. Debt was still worryingly high at almost €49bn.
The core of Spain's telephone service was built in the early years of the 20th century by groups of private companies who developed phone networks primarily for their own use or short-term gain and typically refused to co-operate with each other over a national service. In 1923, General Miguel Primo de Rivera seized power in Spain in a military coup. At the time, the country was one of the poorest in Europe, with its general infrastructure in chaos, especially the hopelessly out of date telephone service. To raise funds, Primo de Rivera put the service out to tender. US company International Telephone & Telegraph had been formed three years earlier with the goal of becoming a global telephone company. Spain's dilemma created a perfect opportunity for the fledgling business, and ITT bought up several of the country's private telephone businesses and combined them as Compania Telefonica Nacional de Espana. The following year, ITT negotiated a 20 year contract with the government to operate the national service.
However the arrangement came to an abrupt end after only 15 years. In 1939 another military coup delivered power into the hands of General Franco, who placed Telefonica under government control. It was formally nationalised in 1945. However, ITT's management of the business had left Spain's telephone service in good shape, considerably more advanced than its peers in Italy or even France, allowing Telefonica to stay abreast of changes in the international marketplace over the next four decades.
During the late 1980s, Telefonica Nacional de Espana began to look beyond its national borders for expansion, developing a particular interest in Latin America. In 1990, the group took a small stake in Chilean operator CTC, and began building its stake in southern Argentina's telephone network, acquiring a 29% share by 1998. In 1994, Telefonica acquired a majority stake in Telefonica del Peru. The pace of acquisition increased the following year, when the company took a large stake in CRT of Brazil, as well as in Argentinean cable company Multicanal. Meanwhile, back home the group launched its own internet service, Telefonica Interactiva, in 1995. That year, the Spanish government sold off most of its stake in the group, and former banker Juan Villalonga was appointed as chief executive to manage the transition from government control to complete independence. In 1997, the group was fully privatised, shortening its name from Telefonica Nacional de Espana to just Telefonica. In a highly controversial deal the same year, the company beat media group Prisa to acquire control of leading commercial TV broadcaster Antena3. It was the first evidence of a determined move by Villalonga to shift the focus of the group into the broadest form of communication. Soon afterwards, Telefonica acquired a minority stake in Recoletos, the publishing house behind daily sports newspaper Marca and business daily L'Expansion.
Meanwhile, the group's interests in Latin America increased substantially in 1998 following the break-up of Brazil's state-owned phone company Telebras. Backed by minority partner Portugal Telecom, Telefonica was the highest bidder for Telesp, the fixed line operator for Sao Paulo, and also acquired mobile service Tele Sudeste Celular. In 1999, the group's internet business Telefonica Interactiva was spun off in an IPO as Terra Networks, and a year later acquired US search engine and portal business Lycos. In a side deal Telefonica agreed a $1bn alliance with Bertelsmann, already Lycos's partner in the Lycos Europe joint venture, to develop retail and e-commerce operations on this new global super-network in return for premium exposure of its various products.
In 2000 the group acquired a controlling stake in Telefonica de Argentina, as well as media group ATCO. In Europe, the group acquired Dutch TV production company Endemol in 2000 for $5.3bn, and came close to a merger with that country's telephone service KPN. However the deal was vetoed by the Spanish government and two of Telefonica's biggest shareholders. The group also discussed merger with BT. In 2000, Telefonica began restructuring its operations in order to group together all of its worldwide media, mobile and internet services. However, high profile chairman-CEO Villalonga, already unpopular with shareholders for his autocratic management style, became implicated in a share dealing scandal, and was forced to resign mid-year. A worldwide economic downturn created further problems a year later. Plans to launch an IPO of the media division under the name Admira were cancelled in 2001 when the business struggled to perform up to expectations. Like other telecoms operators, Telefonica also invested heavily in 3G, spending €6bn on licenses in Spain, Germany, Italy, Austria and Switzerland, adding significantly to its debts.
New group chairman Cesar Alieta announced a clean sweep of the division's management at the end of 2001 in a bid to bolster revenues and profitability. Further restructuring took place in 2002 in order to reduce the group's exposure to advertising-funded broadcasting. Quam, a German mobile subsidiary which had launched the previous year, was shut down, and plans to launch 3G services in other markets were quietly shelved. Terra-Lycos had also encountered serious operational problems following the end of the internet boom. In 2003 Telefonica offered €1.7bn in 2003 to buy out public shareholders, and a year later sold off the Lycos business in all markets except Europe. Instead Alierta embarked on a series of large acquisitions designed to widen the group's telecoms interests. These included Bell South's Latin American mobile operations, Cesky Telekom in the Czech Republic, and a shareholding in Netcom of China, and above all the deal to buy UK group O2. Telefonica was also reported to have opened negotiations to acquire Dutch counterpart KPN for around €20bn. It was the second time that the two companies had discussed merger. A previous deal was agreed in 2000, but was blocked at the last minute by the Spanish government.
The group's strong run came under threat mid-year when chairman Cesar Alierta was charged with insider trading relating to his former role as chairman of Spanish tobacco company Tabacalera. However, charges were later dismissed following an investigation.
Last full revision 9th January 2018
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