Telefónica drops separate Spanish unit in bid for growth

Europe's largest telecoms provider, Telefónica, will radically overhaul its business structure in a move that will witness its Spanish operations relegated from a position of dominance.

This dramatic move will see Telefónica Spain, the traditional core of the company, folded into a new European-wide division as it struggles to combat sharply falling revenues in its home country. Telefónica, which will retain its headquarters in Madrid, will now have two geographical units, Europe and Latin America. The new units that will make the majority of strategic decisions relating to their regions, thus no longer always awaiting direction from Spain.

José María Alvarez-Pallete, the head of Telefónica Latin America until now, will oversee Europe, while Santiago Fernandez Valbuena, previously the operator's CFO, will be in charge of Latin America. Ángel Viláwill join the operator's management team as CFO.

Meanwhile, the operator also formed a new unit, Telefónica Digital, which will be based in London and lead by Matthew Key, currently head of Telefónica Europe. This company said 2,500 staff will relocate to the UK capital, and will be tasked with building revenues around location-based advertising, m-health, m-wallet initiatives and M2M.

The Digital unit will run Telefónica's existing VoIP Jajah service, the Spanish social network Tuenti, cloud computing and the Latin American Internet broadcaster Terra. The unit will be supported by R&D facilities based in Spain and Latin America, with regional offices in Madrid, Silicon Valley and Sao Paulo.

Another new unit, called Global Resources at present, has been formed to examine how the company will "unlock economies of scale" and move quickly to become a global company. This unit is likely to be based in Germany.

Industry analysts have generally voice approval of the announcements, with the investment bank BPI noting: "The creation of Telefónica Digital shows Telefonica's intention to capitalise on its huge subscriber base and broaden its product and services offer," according to Reuters.

Others were less relaxed, questioning whether the performance of Telefónica Spain would be hidden within the wider European results. There would be "reduced visibility for Spain. That is the main drag on Telefónica performance and set to remain so over the next 2-3 years," said the financial research firm Cheuvreux in a note to customers carried by Reuters.

For more:
- see the Telefónica press release
- see this Financial Times article
- see this Reuters article
- see this Guardian article

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