Wednesday, 11 December 2019

Telefonica reveals 5-point plan to boost revenues by €2bn

By Chris Kelly, Total Telecom
Thursday 28 November 19

Consolidation in Latin America and a radical rejig of the company's organisational chart will be the central pillars of the plan

International telecoms giant, Telefonica, has unveiled a 5-point plan to streamline its business operations and generate an additional €2 billion in new revenues by 2022. In a letter to the company's shareholders, Telefonica's chairman and CEO, José María Álvarez-Pallete, said that the current competitive climate meant that the company must look to cut costs and work more efficiently where it could, if it was to reinvigorate its bottom line. “Companies that do not assume their responsibility in this new world will cease to be relevant in the short term. Executives who are not committed to the long term and sustainability are not being responsible…

International telecoms giant, Telefonica, has unveiled a 5-point plan to streamline its business operations and generate an additional €2 billion in new revenues by 2022.

In a letter to the company's shareholders, Telefonica's chairman and CEO, José María Álvarez-Pallete, said that the current competitive climate meant that the company must look to cut costs and work more efficiently where it could, if it was to reinvigorate its bottom line.

“Companies that do not assume their responsibility in this new world will cease to be relevant in the short term. Executives who are not committed to the long term and sustainability are not being responsible,” he said. “It is up to us to envision, design, and build the company we want to be in the future. And we have done so. We have envisioned it, we have designed it and we want to begin to build the path towards it,” he said.

“Geopolitical, macroeconomic and regulatory uncertainties, and high competition in the sector require an increasingly demanding allocation of capital. If in the past the low penetration of voice and data services assured future growth, the current maturity of the markets and the appearance of new competitors subject to different rules demand a highly focused strategic approach,” he added.

Pallette said that his five-point plan could deliver €2 billion in additional revenues by 2022, as well as boosting operating cash flow margins by around 2 per cent.

 

Focussing investment in key markets

First on Pallette's list of commitments was to refocus the company's future investment in its key markets of Spain, Brazil, the UK and Germany. While Telefonica operates in 14 distinct markets across the world, these 4 locations account for 80 per cent of the company's total revenues.

"The plan prioritises most investments in these four markets, improving the products and services offered to customers, leveraging the existing relationship with millions of users in relevant markets and with potential for growth in this new era. In short, concentrating the company’s resources in the most valuable markets," Pallette said.

 

Creating Telefonica Tech to attract new investors in key business units

Telefonica will create Telefonica Tech – a new business unit that will group together digital businesses that Telefonica has identified as having "high growth potential". Telefonica says that the individual businesses contained in this business unit are already growing at around 30 per cent – with the key focus of the Telefonica Tech business unit being to push growth beyond that level.

Telefonica Tech will be headed up by Jose Cerdan, who will serve as CEO.

"This unit will deliver the value proposition that the commercial teams of each country will offer to customers. In addition, the company intends to expand to other countries where Telefónica is not present through agreements with other companies. This new unit is expected to generate more than 2 billion euros in additional revenues by 2022," Pallette said.

 

Creating Telefonica Infra to house the company's infrastructure projects

The main asset of Telefonica Infra will be Telefonica's 50.01 per cent stake in Telxius. The division will be headed up by Guillermo Ansaldo, who will serve as CEO of Telefonica Infra.

"Through Telefónica Infra, Telefónica seeks to highlight the value a unique portfolio of assets, focusing on the development and monetization of towers, DAS, data centres - including EDGE-, greenfield fibre projects or submarine cables, among others. Telefónica Infra will take an open approach to agreements and shareholder structures (majority or minority), and to find the best partners for each type of asset," Pallette said.

 

Consolidating its portfolio in Latin America

A key part of Telefonica's strategy is the consolidation of its disparate portfolio of interests in Latin America into a single business unit. While Brazil will remain as a separate entity, the rest of the company's Latin American interests will come under the governance of  a single Telefonica Latam business unit, headed up by Alfonso Gomez.

“The history of our company can’t be understood without our commitment to Latin America for 30 years, which has made Telefónica a better company. We have always shown a strong dedication to the region, even in its most difficult moments,” said Pallete.

“Our operations in Latin America were the growth engine of the company until a few years ago. However, the particular conditions in these markets have had an impact on the business, reducing its contribution in recent years for different reasons and despite the enormous efforts of our local teams, which have always shown a strong commitment,” he added.

 

Redefining the company's organisational model

Finally, Telefonica intends to redefine its organisational model, to place it closer to the needs of its customers, making it a nimbler and more adaptable organisation.

“In recent years we have launched different initiatives to capture the benefits of digitalization, achieving important advances to date. Now, to become more agile and accelerate the execution of our strategy, we must evolve our operating model,” Pallette added.

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