Telefonica (Spain)

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Telefonica is Spain's main telecoms operator, with an extensive fixed line service at home and in Latin America, as well as three substantial mobile brands in Movistar, Vivo and O2. The group 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 has also become 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.

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Brands

MoviStar Vivo
Terra O2

Worldwide

Telefonica de Argentina Compania de Telefonos de Chile
Telesp (Brazil) Telefonica Moviles do Mexico
Telefe Telefonica del Peru

Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 31st Mar 2016: The 70-year-old chairman & CEO of Spanish telecoms giant Telefonica is set to step down later this year. Cesar Alierta has led the company since 2000. Current COO Jose Maria Alvarez-Pallete is almost certain to be his successor. That appointment is to be put before the group's board next week.

Adbrands Weekly Update 23rd Oct 2014: Spanish telecoms giant Telefonica has cancelled a plan announced in July to shift its global media account to Publicis Groupe, and will instead consolidate the business within Havas Media, which had previously managed part of the business. Publicis-owned ZenithOptimedia had been due to take over the business from January 2015. However, circumstances have changed since that appointment was made. Specifically, Telefonica signed a deal to acquire Vivendi's Brazilian telecoms subsidiary GVT... and Vivendi's executive chairman and largest individual shareholder is Vincent Bollore, who is also the controlling shareholder in Havas. It is widely believed that, as a sidebar to the GVT deal, pressure was put on Telefonica to rescind the Publicis appointment and instead park the account at Havas Media.

Adbrands Weekly Update 25th Sept 2014: Telefonica of Spain secured a deal to acquire Brazilian fixed line operator GVT from French group Vivendi for E7.24bn in cash and stock. The agreement allows both groups to achieve key strategic goals. The addition of GVT to its existing Vivo mobile operation in Brazil makes Telefonica the clear leader in that country's telecoms market. Also part of the payment is being made with the transfer of most of Telefonica's controversial shareholding in Telecom Italia to Vivendi. At the same time, Vivendi ends its direct involvement in the telecoms industry, having now divested all but a few minority investments in the sector.

Adbrands Weekly Update 4th Sept 2014: Spanish telecoms group Telefonica looks set to become the market leader in fixed line communications in Brazil, as a result of exclusive talks to acquire competitor GVT, currently a subsidiary of Vivendi of France. If completed that deal would boost Telefonica into the #1 spot by local market share, narrowly ahead of rivals Oi and America Movil. Telefonica is already the market leader in Brazilian mobile through its Vivo unit, but ranks third in fixed line services. It has offered to acquire GVT for E7.45bn.

Adbrands Weekly Update 7th Aug 2014: Telefonica of Spain has offered to acquire French group Vivendi's last remaining telecoms asset, the Brazilian fixed line operator GVT, for E6.7bn in cash and shares. Vivendi originally acquired the business in 2009 following a bidding war with the Spanish operator, but a change of strategy since then has prompted to gradually extricate itself from the telecoms sector - it agreed to sell control of its biggest business, French mobile operator SFR, earlier this year. To sweeten the deal, Telefonica is also proposing a transfer to Vivendi of its minority stake in Telecom Italia. The acquisition of GVT would strengthen the Spanish group's already considerable interests in Brazil, where its mobile service Vivo is the market leader by a large margin.


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Background

Free for all users | see full profile for current activities: 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 E6bn 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 E1.7bn 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 E20bn. 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. See full profile for current activities


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