Telefonica : Managing Global Operations

Abstract

In 2003, Telefonica, the Spanish telecommunications major, is facing intense pressure from different quarters. In Latin America, one of its strongholds, economic conditions are weak. Telefonica's investments in advanced wireless technologies have not yielded the desired results due to the need for more investments, unproven technology and uncertainty in demand. The case illustrates how a protected government-owned company can be turned into a global player through proactive management and strong leadership. This case also illustrates some of the challenges involved in international expansion.

There are 500 million people in Latin America. That's more than enough to deliver the critical mass and synergies to aspire to a much different position globally.

-Fernando Abril-Martorell Hernandez, COO, Telefonica

In early 2003, Telefonica S.A., the second largest telecommunications company in Europe faced two challenges, which would determine its future strategy. The company was exposed significantly to Latin America, which was always viewed as its natural market. But the social, political and economic crisis in Argentina and Brazil, the two most important economies in the region, had changed the scenario dramatically. In Europe, Telefonica had invested billions of dollars in 3G licenses. But 3G had not taken off as expected and was still unproven. Telefonica was saddled with huge sunk costs. It had to decide on whether to go ahead and build the expensive 3G networks, which would involve an estimated investment of another $8 billion or adopt a wait and watch approach. Both the regions were also experiencing slow economic growth. In 2002, the growth in GDP for the Euro region was 0.8% while for Latin America it was 0.3%.

Telefonica was organised into seven business units in Latin America, Europe, the US, Africa and Asia. The fixed line business in Spain run by Telefonica de Espana was the group's main stay. Its Internet arm, Terra Lycos provided web services. The mobile division, Telefonica Moviles was a market leader in Spain and Latin America (55.6% in Brazil and 52% in Peru ). The other divisions in Telefonica's stable were Telefonica Media (media and entertainment), Telefonica Data (integral data transmission services), Terra Networks (Internet Service Provider), Atento Holding (call-centre business) and Telefonica Publicidad e Informacion (telephone directory business). These divisions were further divided into subsidiaries for different product lines.

Background Note

Early History

Established in the early 1920s, Telefonica was initially owned by ITT of US. But it was nationalised by the Spanish government in 1945, with 41% of the shares held by the government. The company introduced long distance service in 1960, satellite communications in 1967 and an international service in 1971. During the 1960s, the government's share in Telefonica came down to 38% after a few banks and private investors were allowed to buy small stakes.

 

More...

        Case Code   BSTA071
   Case Length    13 Pages
              Period    2003
 Organization     Telefonica
        Pub Date     2003
Teaching Note    Not Available
     Countries    Spain, Europe
      Industry    Telecommunications

Issues

Telefonica; Argentina telecommunications; Economic crisis in Argentina; Restructuring; Managing global operations; Spanish telecommunications; Terra Lycos; Juan Villalonga; Alierta; 3G licences; ADSL broadband; Qualcomm; Mobile; Telephony; Telecommunications