Business Transformation at Telefónica De España

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Case Details:

Case Code : BSTR256
Case Length : 20 Pages
Period : 1998-2006
Pub Date : 2007
Teaching Note : Not Available
Organization : Telefónica de España
Industry : Telecom
Countries : Spain

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"For us, the transformation means: transforming the network, transforming the services and transforming the business. We are in a transition point, complex and exciting at the same time."¹

- Juan Carlos Valverderey, Responsible for Technology Strategy on Network and Service Architecture in Telefónica de España, in 2006.

"We find ourselves in an increasingly complex and competitive market, in which we are making great efforts to promote broadband services. We achieved significant advances in developing the Information Society in Spain. At the same time, we also made significant progress in the internal reorganization of our company, developing it towards becoming a more commercially oriented and customer driven company."²

- Julio Linares, Executive Chairman, Telefónica de España, in 2005.

Introduction

For the nine months ending September 30, 2006, the Spain-based diversified telecommunications group, Telefónica SA (Telefónica) generated total revenues of €38,704³ million and a net profit of €5,185.7 million. The net profit witnessed an increase of 59.4% over that of the previous year. Telefónica was one of the leading telecommunication companies in the world with a major presence in Europe, Africa, and Latin America. As of June 2006, it had 191.7 million customers. Telefónica de España S.A. (Telefónica de España), a subsidiary of Telefónica, was a leader among the telecommunication operators in Spain, involved in providing fixed telephony and broadband services (Refer to Exhibit I for details of subsidiaries of Telefónica).

During the first three quarters of 2006, Telefónica de España generated revenues of €8,893.9 million, with a growth of 1.7% over the same period in the year 2005.

The revenues from Telefonica's traditional access business stood at €2,078.7 million, traditional voice services at €3,665.6 million, Internet broadband services at €1,762.6 million, data services at €806 million, and IT services at €255.8 million (Refer to Exhibit II for Revenue, Operating Income, and OIBDA⁴ of Telefónica de España for the first nine months of 2006 and 2005). Telefonica de España's improved financial performance was the result of a business transformation program implemented in the year 2000. The program enabled the company to reverse its declining earnings trend, and become one of the leading broadband operators in Europe and an integrated communication solutions provider.

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1] Juan Carlos Valverderey, "New Challenges for Transforming the Network," www.wtc2006.com, May 01, 2006.

2] "Telefónica de España SAU," Corporate Responsibility Report, 2005.

3] As of February 05, 2007, € 1 = US$ 1.309.

4] Operating Income before Depreciation and Amortization (OIBDA) = Operating Income + Depreciation + Amortization + Tax + Interest. OIBDA does not incorporate non-operating income.