Telefónica plans operational spin-off of Latin American units in major restructure

Telefónica is to initiate an operational spin-off of its subsidiaries in Spanish-speaking America ahead fo a strategic review as part of a major restructuring of the Spanish telco to set it on a growth trajectory. 

José María Álvarez-Pallete

Announcing the changes, CEO José María Álvarez-Pallete identified Spain, Brazil, the UK and Germany as the operator’s main markets going forwards, describing them as “large markets, with growth potential, where our scale and leadership allow us to be more ambitious, and where we are going to focus our investments in order to be even more relevant and grow”.

He said that the company was making “a major effort to improve customer experience on the most advanced ultra-broadband networks” in these countries. 

Telefónica will review its involvement in the Spanish-speaking Americas, with an operational spin-off that will see its assets in the region managed as an autonomous unit as the first step. 

“Until a few years ago, our operations in Latin America were the driving force behind the company’s growth. However, the particular conditions in these markets have had an impact on the business, reducing its contribution in recent years for various reasons – macro and regulatory environment, greater competitive pressure, insufficient scale or volatility of currencies – and despite the enormous efforts of our local teams, which have always shown a strong commitment,” Álvarez-Pallete said.

Analysts at Jefferies valued the Spanish American assets at €10.9 billion, including €3 billion for Colombia and €2.5 billion for Chile. It said that applying the multiples realised for the sale of Telefónica assets in Central America – the operator sold its Costa Rican, Panamanian and Nicaraguan operations to regional player Millicom in February for a total of US$1.65 billion – could raise this to €14 billion. 

Jefferies also speculated that “the more focused approach in [Spanish-speaking America] may also encourage investors to revisit [Telefónica’s] Mexico restructuring” that saw its unit in that country abandon its mobile network plans to become an MVNO using AT&T infrastructure. 

Other measures being initiated by Telefónica as part of the restructuring include the creation of dedicated infrastructure and technology arms. Telefónica Infra will build on the group’s majority stake in Telxius to create “one of the largest telecommunications infrastructure units in the world”, while Telefónica Tech will combine the group’s cybersecurity, IoT and Big Data, and cloud activities for the B2B market.