The academic year 2024 will not be another year for the Spanish telecommunications sector. The changes ahead are profound. At stake is the status quo of a key sector of the economy. The first open front is at Telefónica. April 19, 2024 marks the 100th anniversary of the operator. One hundred years in which the company has undertaken several tours in the public-private nature of its property. It was founded in 1924 as a subsidiary of North American ITT; It was nationalized in 1945 and completely privatized five decades later; and in 2024, the state will again become the operator's first shareholder when the purchase of 10% by the State Society of Industrial Participations (SEPI) is completed.
The eventful history of Spain's first telecommunications company will reach a new milestone this year, and not just because of its 100th birthday. The government has decided to intervene in a multinational company that it considers strategic due to its role in cybersecurity and defense. Telefónica is one of the main contractors of the armed forces, the Ministry of the Interior and other organizations that ensure the security of the state. But beyond that, the board wants to contribute to its “stock stability” by investing in its capital. A euphemism that contains the fear that the emergence of the Saudi Telecom Company (STC) will upset the balance of power between the operator's main shareholders (BBVA, CaixaBank and the BlackRock fund). The telecommunications company owned by the Saudi sovereign wealth fund announced last September the purchase of 4.9% of the capital with an option for an additional 5% through convertible financial instruments. The movement then caused a financial and political earthquake. It surprised both Telefónica's board and the government, which has not yet given the Saudis the green light to complete the 9.9% takeover.
The government and the STC now have to move their pieces carefully like on a chessboard, because nothing has been decided in the game yet. The SEPI has already warned that it will take time to acquire 10% so as not to increase the cost of the operation. Analysts expect that this period will last up to six months and that such a strong public presence of the stake could deter the investment funds that the operator needs to revive the price of its shares (70% lower than a year ago). On the other hand, the Saudis are in no deadline or rush to reach their 9.9% share. When both operations are completed, the moment of truth will come to clear up uncertainties as both investors will be able to sit on the operator's board. The government, together with BBVA and La Caixa, will try to revive Spain's hard core. And STC needs to choose its partners, potentially including the BlackRock fund. It remains to be clarified what role the current management team will play, with its president José María Álvarez-Pallete at the helm.
Brussels earrings
But the changes will affect not only the first telecommunications company, but also the one that will become its successor on the podium in terms of the number of customers (albeit with lower incomes) when Orange and MásMóvil complete their merger. The operation depends only on the European Commission's decision before February 15 (although it can postpone this date if it deems it appropriate). In a final attempt to win the favor of the local authorities, who have shown much opposition to the proposal, both companies have signed an agreement with Digi in which they undertake to transfer their mobile networks to Digi under a wholesale lease agreement at an advantageous price, and 60 megahertz radio spectrum in various mobile phone frequency bands for sale for 120 million euros. A risky pact because it means strengthening the operator, which is currently experiencing the greatest growth in sales and subscribers in the Spanish market due to its low tariffs. In 2023 alone, the company managed to steal 766,000 subscribers from its competitors – including MásMóvil and Orange – through the portability procedure, which allows changing companies while keeping the number. The Romanian company was founded in 2008 as a niche immigrant calling company. Its marketing was limited to word of mouth and its commercial network consisted of call centers and stores that sold everything at a certain price. Fifteen years later, Digi is the fifth company in Spain with almost six million connections. Your secret: simple and affordable tariffs and your own customer service staff, both in the call center and during installation. If Brussels gives the green light to the merger, it will be very difficult for the resulting company to weather the Romanian storm.
Following the merger, a new mixed management team led by MásMóvil's current CEO, Meinrad Spenger, will be responsible for managing an as-yet-undefined transition phase, whose goal of taking the merged company public is complicated given its poor performance on the trading floor of telecommunications companies in recent years. In addition to the economic disadvantage, the merger is also a financial disadvantage: the new company will have to deal with debts of 12,000 million euros, which are due to the high liabilities of MásMóvil and the multi-million dollar dividends will be paid by the company's own venture capital funds (KKR , Cinven and Providence) for transfer to Orange.
And if the market itself is already competitive, it will be even more so if Zegona acquires Vodafone. The Spanish subsidiary of the British giant was taken over by the fund for 5,000 million euros, although, as in the case of the merger of MásMóvil and Orange, hardly any cash outlay, i.e. through leverage. To repay this debt, the UK fund must halt the commercial downturn that Vodafone has fueled over the last decade. And they chose José Miguel García, the architect of Jazztel's revival and subsequent sale, to dive headfirst into the low-cost market. The other weapon that Zegona is considering to make the purchase profitable in the shortest possible time is a significant reduction in costs, including, first of all, personnel costs. And in 2024, we will once again witness new and painful workforce adjustments in the industry, which has lost more than 30,000 jobs since 2011. Telefónica has already initiated the ban and 3,421 employees are leaving the company via the ERE. Union sources are considering an adjustment of up to 2,000 workers in the case of Vodafone, and the new companies MásMóvil and Orange, although they officially deny this, will also result in numerous double jobs.
Follow all information Business And Business on Facebook and Xor in our weekly newsletter
The five-day agenda
The most important business quotes of the day, with the keys and context to understand their significance.
RECEIVE IT IN YOUR EMAIL
Subscribe to continue reading
Read without limits
_