Telefonica will focus on its 4 key markets

Chairman and CEO of Telefonica Jose Maria Alvarez Pallete.

Spanish group Telefónica (TEF) announced an action plan focused on five points: (i) focus investments and growth in Spain, Brazil, the United Kingdom and Germany; (ii) creation of Telefónica Tech; (iii) creation of Telefónica Infra; (iv) operational spin-off of Latin America (Latam ex Brasil) and (v) redefinition of the corporate center. This leads to a reorganization of the current Executive Committee.

“The company focuses its efforts on its main geographies. Those that represent a higher percentage of their income (80% of the total), have higher margins and Telefónica’s share is also higher,” analysts at Bankinter commented.

In an industry with large investment needs, high price competition, high leverage and demanding regulation, the same experts point out, it seems logical to focus on the most profitable markets.

Telefonica will also create two new segments aimed at two of the areas with the best prospects currently in the sector: Telefonica Tech will go to capture opportunities in the digital business, which grows at high rates and presents a growing potential. It will focus on cybersecurity, IoT / Big Data and cloud. The company estimates an additional € 2bn generation of revenue in 2022 thanks to this activity.

Second, Telefonica Infra will agglutinate communications infrastructure assets. Telsius will be among its participations. With this, the operator reactivates the monetization of these assets, after the suspension of the Telxius OPV a few years ago, in an environment in which these types of assets are highly attractive.

Finally, market analysts value the strategy of separating its business in Latin America as “interesting, given the weak evolution of the operator in some countries”. Telefonica does not rule out divestitures in inefficient markets.

The spin-off of the Telefónica operation in Latin America “prepares the ground for a sale or the entry of a new partner. The decision is part of the region’s slower growth after the commodity boom, exchange instability and an industry that no longer has the growth of 15 years ago,” says expert Enrique Carrier to the Argentine newspaper Clarín.