Telefonica’s Julio Linares: “Spain has regained 50pc of productivity”

Julio Linares was Telefonica’s CEO until September last year. Now he is the vicepresident of the company, which is Spain’s biggest and the world’s third phone provider.

The golden age enjoyed by the sector in the 90s lasted until the year 2000. Afterwards, even though the sector managed to keep growing, it seemed to lose appeal for investors. Do you think the sector is bound to live a golden age again?

Both companies and sectors experience diverse cycles. I think that one of the greatest virtues of our sector is that we offer a product that is getting more and more necessary. Consumers are so much addicted to their cell phones that 90% of them have the device by their side 24 hours a day. It’s hard to talk about other industries producing and selling a product and a service as demanded as ours. Therefore, I am sure a better time will come again in the foreseeable future. I am positive markets will eventually acknowledge the true value of our companies although they now fail to do so due to other reasons.

Phone providers complained that in spite of a rise of data traffic in mature markets such Spain, profits are at a standstill. To the extent that two years ago you were discussing the possibility of charging content providers like Google and Amazon. What’s the situation nowadays?

It’s true that web traffic is rising in both mature and developing countries. The wide availability of high-speed internet connection is the cause of that. However, even though this is a positive fact that gives value to our infrastructure and our business, it also entails a challenge. We have to find the way of turning all this network traffic into one of our greatest sources of income. I believe there are basically two ways of doing this. On the one hand, we have to give our clients different options with regard to our high-speed services. For example, by offering them different services and conditions, depending on their needs. On the other hand, we have to give Internet connections more services.

I guess this is a critical goal for phone providers in order to regain investors’ interest. 

Both are very important. Specially if we want to raise our income so that we can make our investments profitable. We should not forget that we increasingly need  powerful networks. Building networks able to sustain this huge demand of traffic requires a remarkable investment.

Speaking of investment. How are you going to pay for them? Which conditions does Telefonica follow in order to continue investing in infrastructure?

Investments must be profitable. And in such a regulated sector like ours, you need a very stable framework (a framework you know and you can predict). So that one can establish a calendar in order to make the investments profitable. And this was not the case in many occasions. Nevertheless, with regard to regulations, recently we’ve seen many changes in Europe that encourage the development of these investments.

What kind of changes?

There are changes in regulations that show us they won’t push for a cut on wholesale prices; that new prices won’t necessarily be strictly based on costs; that there will be technological neutrality so that needs can be fulfilled with different technologies; that they will all follow the same framework; and that this framework is likely to be stable until the year 2020. They all will positively stimulate investment in what constitutes the two biggest infrastructures of the future: fibre optic cable and the fourth generation of smartphones.

How many kilometres of fibre optic cable you’ll need? What kind of investment are we talking about?

It’s hard to estimate how many kilometres, but I can tell you that according to Europe’s Digital Agency, the aim is to have 50% of the households connected by the end of 2020. Thousands of kilometres of fibre optic cable will be needed as well as a huge investment, not only in Spain but also in the whole Europe. We are talking about figures like 250,000 million euros for the whole EU. In Spain it will be a proportional amount. Nonetheless, these investments have already started.

In the case of Spain, when do you think it will start to emerge again?

I think we already started to see very positive signs. There are more and more people who are pointing to these signs as well, which is actually very encouraging. Which signs? Well, for instance, in 2009 and 2011 our exports grew a 36% what constitutes a biggest percentage than that of Germany, Italy or France. Something that is helping to balance the fall on domestic demand. There are other important signs as well: during the crisis we regained a 50% of the productivity we lost during the previous decade. There is also the case of the rehabilitation of the real state sector, reaching levels similar to other European countries. Finally, our companies managed to substantially lessen their level of debt. No one should fail to acknowledge these are very positive and encouraging signs.