Telefonica : Managing Global Operations (Page 2)

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.

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Early History contd...

In the early 1980s, the Spanish telecommunications market was characterised by a shortage of telephone lines, long waiting lists for new connections and poor quality of service. Spain's entry into the European Union (EU) in 1986 suddenly increased the demand for telecommunications services that the company was not prepared for, and the services suffered.

So in the late 1980s, Telefonica embarked upon a major investment program to correct the situation. In 1987, as a part of the government's drive towards privatization, the government sold a 6% stake in Telefonica through a Public Offering (PO) and was listed on the New York Stock Exchange (NYSE). The PO generated € 283.7 million in revenues and the government's stake in Telefonica dropped to 32%. This was done in part to get foreign ownership, which would stimulate supervision of the company and increase efficiency. Another reason for the PO was access to finances abroad to invest in Telefonica's expansion. Telefonica also began to globalize.

In 1990, Telefonica also began to globalize. In 1990, Telefonica purchased a minority stake in Compania de Telefonos de Chile. Subsequently, a Telefonica led consortium won a bid to manage the southern half of Entel, Argentina's state owned phone system. It also acquired a majority stake in state owned monopoly Telefonica del Peru.By 1994, Telefonica had eliminated the waiting list in Spain, digitized several telephone lines, decreased line failures and significantly improved the quality of service. The same year, the Spanish government announced that it would meet the EU deadline for opening telecom markets by 1998 and allowed Telefonica to enter new businesses. In the September 1995, another 11% stake in Telefonica was sold through a PO for €1 billion. Though the government stake dropped to 21%, it retained management control. Telefonica realized the need to respond to fast changing technology and increasing competition due to deregulation. The company decided to expand abroad and widen its product portfolio by adding data services and mobile telephone services. ..........

More...

Exhibit: I Telefonica: Global Footprint (in '000s)

Exhibit: II The Spanish Telecommunications Market, 2001

Figure (i) Revenues of Major Spanish Telecommunication Groups, 2001

Figure (ii) Market Shares of Wireless Communications Players in Spain, 2001

Exhibit: III Telefonica: Sales by Business Line

Expansion in Latin America

Expansion in Europe

Exhibit: IV 3G Licenses Acquired by Telefonica Moviles

Figure (iii) Telefonica: Operating Cash Flows from Divisions, 2002

Future Outlook

Exhibit: V Argentina: Annual Growth in %

Exhibit: VI Brazil: Annual growth in %

Bibliography

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

Issues

Keywords

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

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