2024: the year of truth for Spanish 'telecos'

The 2024 academic year will not be another year for the Spanish

telecom

sector .

The changes that are coming are profound.

At stake is the status quo of a key sector for the economy.

The first open front is in Telefónica.

April 19, 2024 will mark the operator's first centenary.

One hundred years in which the company has undertaken several round trips in the public-private nature of its property.

It was born in 1924 as a subsidiary of the North American ITT;

In 1945 it was nationalized, to be completely privatized five decades later;

and in 2024, the State will once 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 the first Spanish telecommunications company is going to have a new milestone this year, and not only because of its centenary birthday.

The Government has decided to intervene in a multinational 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 in addition, the Executive wants to contribute to its “shareholding stability” with the entry into its capital.

A euphemism that contains the fear that the emergence of 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 fund announced last September the purchase of 4.9% of the capital with an option for another 5% through convertible financial instruments.

The movement then caused a financial and political earthquake.

It caught both the board of directors of Telefónica and the Government by surprise, which has yet to give the green light for the Saudis to complete the takeover of 9.9%.

The Government and STC must now move their pieces carefully as on a chess board, because nothing has yet been decided in the game.

The SEPI has already warned that it will take its time to acquire 10% so as not to skyrocket the cost of the operation.

Analysts estimate that this period will last up to six months, and that such a strong public presence in the shareholding may scare away the investment funds that the operator needs to revitalize the price of its shares (70% lower than a year ago). decade).

On the other hand, the Saudis have no deadline or rush to complete their take of 9.9%.

When both operations are completed, the moment of truth will come to clear up unknowns, because both investors will be able to sit on the operator's board of directors.

The Government will try to revive the Spanish hard core, together with BBVA and La Caixa.

And STC must choose its partners, among which may be the BlackRock fund.

It remains to be clarified what role to play by the current management team, with its president, José María Álvarez-Pallete, at the helm.

Brussels Earrings

But the changes will not only affect the first telecommunications company, but also the one that will become its successor on the podium by number of clients (although with lower income) when Orange and MásMóvil complete their merger.

The operation is only pending the European Commission's ruling before February 15 (although it can postpone that date if it deems appropriate).

In a last attempt to win the favor of the community authorities, who have put many buts to the operation, both companies have signed an agreement with Digi by which they undertake to transfer their mobile telephone networks to it through a wholesale rental contract at a advantageous, and to sell 60 megahertz of radio spectrum in different mobile phone frequency bands for 120 million euros.

A risky pact because it means strengthening the operator that is currently growing the most in the Spanish market both in revenue and subscribers thanks to its low rates.

In 2023 alone, it managed to snatch 766,000 subscribers from its rivals – including MásMóvil and Orange – through the portability procedure, which allows you to change companies while keeping the number.

The Romanian company was born in 2008 as a niche business for immigrant calls.

Its marketing was reduced to word of mouth and its commercial network was call centers and stores selling everything at a price.

Fifteen years later, Digi is the fifth company in Spain, with almost six million lines.

Their secret: simple and cheap rate plans and their own customer service staff, both call center and installation.

If Brussels gives the green light to the merger, the company that emerges from the operation will have a very difficult time facing the Romanian storm.

After the merger, a new mixed management team, headed by the current CEO of MásMóvil, Meinrad Spenger, will be in charge of piloting a transitional stage not yet well defined, whose objective of taking the merged company public is complicated, given the poor evolution on the telecos trading floor in recent years.

In addition to the commercial one, the other great handicap of the merger is the financial one: the new company will have to deal with a debt of 12,000 million euros, the result of the high liabilities inherited from MásMóvil and the multimillion-dollar dividends that will be distributed by the proprietary venture capital funds. (KKR, Cinven and Providence) for the transfer to Orange.

And if the market in itself is already competitive, it will be even more so when Zegona takes over Vodafone.

The Spanish subsidiary of the British giant was acquired by the fund for 5,000 million euros but, as in the case of the merger of MásMóvil and Orange, with hardly any cash outlay, that is, through leverage.

To repay that debt, the British fund needs to stop the commercial drift that Vodafone has been dragging on in the last decade.

And they have chosen José Miguel García, the architect of the refloating and subsequent sale of Jazztel, to dive headlong into the low-cost market.

The other weapon that Zegona is considering to make its purchase profitable in the shortest possible time is a significant cost cut, among them, and first of all, personnel costs.

And in 2024 we will once again witness new and painful workforce adjustments in the sector, which has lost more than 30,000 jobs since 2011. Telefónica has already opened the ban, with 3,421 workers leaving through the ERE.

Union sources are considering an adjustment of up to 2,000 workers in the case of Vodafone, and the new MásMóvil and Orange, although they officially deny it, will also have a lot of duplication of jobs.

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