Spain’s Telefonica said it would split part of its Latin America business and create new units for digital technology and infrastructure under a plan aimed at generating more than 2 billion euros or $2.20 billion a year in extra revenues by 2022.
Europe’s fourth-largest telecoms company is struggling to achieve solid profit growth. “The model is tired out so we need to reinvent ourselves,” Telefonica CEO Jose Maria Alvarez-Pallete told a news conference on Wednesday.
Telefonica Group’s subscriber base stood at 345.8 million at September 2019, virtually stable y-o-y excluding changes in the perimeter. The average revenue per customer rose 4.3 percent y-o-y organic and 4.7 percent in January-September, while churn improved 0.2 p.p. both y-o-y and q-o-q.
Telefonica’s revenues increased 1.7 percent to €11.902 billion in the third quarter and 0.7 percent to €36.023 billion in January-September. Handset sales growth was 17 percent, while service revenue growth was 1.8 percent.
The new measures include an operational spin-off of Telefonica’s business in Spanish-speaking Latin America, leaving the company to focus on key markets in Spain, the United Kingdom, Brazil and Germany.
# Focus investment and growth in Spain, Brazil, the UK and Germany
# Creation of Telefonica Tech
# Creation of Telefonica Infra
# Operational spin-off of Hispanoamerica in a single unit
# Redefinition of the company’s corporate centre
Alvarez-Pallete said the company would conduct a strategic review and was open to mergers and acquisitions.
The company hopes the revenue boost will come from a new unit, Telefonica Tech, formed initially by grouping together cybersecurity, the Internet of Things and cloud computing.
Telefonica will also create a unit to hold its portfolio of communications towers and other infrastructure assets, providing services to other operators and incorporating partners.
Telefonica said four key countries will prioritize investment, advance digitalization and boost revenues. Spain, Brazil, Germany and the United Kingdom are Telefonica’s four main markets.
Although at the end of the third quarter of 2019 the Group was present in 14 countries, these four geographies concentrated 218 million accesses or 63 percent of the total; approximately 80 percent in revenues, OIBDA and operating cash flow.
The four country heads will continue to report to chief operating officer, Angel Vila: Emilio Gayo (Spain), Christian Gebara (Brazil), Mark Evans (UK) and Markus Haas (Germany).
Telefonica Tech will bring together digital businesses with high growth potential. It aims to become a key partner helping other companies undertake their digital transformation. This unit will initially focus on three businesses: cybersecurity; IoT / Big Data and cloud. These businesses are collectively growing revenues by more than 30 percent and the aim is to boost this growth.
This new unit is expected to generate more than 2 billion euros in additional revenues by 2022. The CEO of this new company will be Jose Cerdan, currently Global Head of the B2B segment in Telefonica, and he will report to Angel Vila.
The CEO of Telefonica Infra will be Guillermo Ansaldo, who has to date led the Global Resources unit of Telefonica.