Álvarez-Pallete lays the foundations for the Telefónica of tomorrow

Telefónica's new action plan is based on five strategic decisions: focus on Spain, Brazil, the United Kingdom and Germany as key markets; creation of Telefónica Tech; creation of Telefónica Infra; operational spin-off of Latin America, and redefinition of the corporate center.

The Board of Directors of Telefónica approved this Wednesday, at the proposal of its executive president, José María Álvarez-Palletand, a new action plan which will serve as a catalyst for the company's transformation and seeks to: prioritize markets where the company can be relevant and grow in a long-term sustainable model, promote opportunities with the greatest growth potential while leveraging the value of its infrastructure, and increase agility and improve efficiency.

The executive president of Telefónica has conveyed to the Board of Directors his conviction that Telefónica has an enormous growth opportunity before it. Likewise, he explains that it is "a technological revolution, but also a social revolution that will alter our immediate future. A revolution that will generate trillions of euros of value and will probably help us solve challenges that until now humans have not been able to conquer. For this revolution to be good for everyone, it must be fair and inclusive. It must be humane."

In a letter addressed to shareholders, Álvarez-Pallete himself states that it is, “without a doubt, the most important that I have written to you since I was appointed president of Telefónica.”

"Companies that do not assume their responsibility in this new world will cease to be relevant in the short term. Managers who do not commit to the long term and sustainability will not be responsible," says the executive president of Telefónica.

"It is up to us to imagine, design and build the company we want to be in the future. We have done it, we have imagined it, we have designed it and we want to start building the path towards it," he adds.

The executive president of Telefónica affirms that "the geopolitical, macroeconomic and regulatory uncertainties, and the high competition in the sector require an increasingly demanding allocation of capital. If in the past the low penetration of voice and data services, especially in emerging countries, ensured future growth, the growing maturity of the markets and the emergence of new competitors subject to different rules demands very focused strategic approaches."

The new needs and growing demands of customers, both individuals and companies, given the explosion of connectivity and Artificial Intelligence, the generation of value for shareholders in the short, medium and long term, and the employees' vision of the company have also been, as indicated by the president in said letter, relevant points for the configuration of the new model.

Five key markets

The new action plan, which will serve as catalyst for company transformation, settles in five strategic decisions: focus on Spain, Brazil, the United Kingdom and Germany as key markets; creation of Telefónica Tech; creation of Telefónica Infra; operational spin-off of Latin America, and redefinition of the corporate center.

The implementation of all these measures is expected to generate, among other effects, more than 2,000 million additional euros of income and two percentage points of improvement in the operating cash flow (OpCF) margin in 2022.

Four key countries to prioritize investment, advance digitalization and boost income Currently, Spain, Brazil, Germany and the United Kingdom constitute the four main markets for Telefónica. Although at the end of the third quarter of 2019 the Group was present in 14 countries, these four concentrated 218.1 million accesses (63% of the total) and 80% of revenue, Oibda and operating cash flow (OpCF).

The company's plan involves prioritizing the bulk of its investments in these four markets, improving the offering and services offered to customers, with the leverage offered by the existing relationship with millions of users in relevant markets with growth potential in this new phase. In short, concentrate resources on the most valuable markets.

Investment will also be prioritized for the modernization and deployment of the network, as well as for the digitalization of the company, which allows improving service and customer service and capturing efficiencies.

Reporting to the CEO of Telefónica, Angel Villa, the current four people responsible for these markets are maintained: Emilio Gayo (Spain), Christian Gebara (Brazil), Mark Evans (United Kingdom) and Markus Haas (Germany).

Telefônica Tech and Infra

The Board of Directors of Telefónica has also agreed to the creation of Telefónica Tech, a unit that will bring together the digital businesses with high growth potential and that aims to be the partner that accompanies other companies in their digital transformation.

Initially, three businesses will be developed in this unit: cybersecurity, IoT/Big Data and cloud. Telefónica intends to promote the growth of these activities which, in aggregate, are already achieving billing increases of over 30%. This unit may expand in the future if new business opportunities with such potential appear. Likewise, it is open to acquisitions that complement the portfolio as has been done in recent years.

The units currently dedicated to providing the aforementioned services will be integrated into Telefónica Tech, in order to further focus management and achieve the scale that allows attracting the appropriate technological talent. With more agile, efficient processes and the leverage that the incorporation of new partners can provide, we want to exponentially accelerate the growth of these businesses.

This unit will be the one that delivers the value offer that the commercial teams of each country will offer to clients. In addition, it is intended to export the proposal to other countries where Telefónica is not present through agreements with other companies. This unit is expected to generate more than €2 billion of additional revenue in 2022.

The CEO of this new company will be Jose Cerdan, until now Global Head of the B2B segment at Telefónica, reporting to the CEO. Cerdán has a great entrepreneurial spirit, he has solid experience in creating companies, multiplying their income and capturing all their technological potential. He is a great promoter of the digital agenda, advising important companies in the Spanish and international market, as well as private and public organizations and institutions and universities. Its relationship with Telefónica began in 2011, when Telefónica acquired Acens. In recent years, as Global Head of the B2B segment, he has led, together with operations, the growth of income in business services.

Telefónica also creates Infra to enhance asset value and accelerate growth. With 50.01% of Telxius as its first asset, Telefónica Infra was created to bring together Telefónica's shareholdings in communications infrastructure vehicles, providing service to third-party operators and incorporating partners.

Through Telefónica InfraTelefónica seeks to value a unique portfolio of assets, focusing on the development and monetization of towers, distributed antenna systems, data centers - including EDGE -, greenfield fiber projects or submarine cables, among others.

With a broad philosophy of agreements, Telefónica Infra is open to different shareholding schemes (majority or minority), and to the best partners for each type of asset.

Also reporting to Ángel Vilá, the CEO of Telefónica Infra will be Guillermo Ansaldo, who has led the Telefónica Group's Global Resources unit to date. Ansaldo has a solid executive track record at an international level, leading transformation strategies for large teams and building alliances with other large technology partners. He has a deep knowledge of the company both from an operational point of view (CEO of Spain and Argentina) and from a technical point of view, being until now the group's global technology manager.

Latin America

Finally, it should be noted that the multinational intends to create a unit that brings together Telefónica's businesses in the Latin American countries (all except Brazil) where it operates today.

"The history of our company cannot be understood without the commitment for 30 years to Latin America, which has made Telefónica a better company. "We have always shown a strong commitment to the region, even in its most difficult moments," recalls Álvarez-Pallete.

"Until a few years ago, our operations in Latin America were the company's growth engine. However, the particular conditions in these markets have impacted the evolution of the businesses, reducing their contribution in recent years for different reasons and despite the enormous efforts of the local teams, who have always shown a strong commitment," he argues.

Given this reality, a unit is created that will have a specific management team that is different from the rest of the group, whose fundamental objective will be to attract investors and obtain potential synergies with other market agents, with a philosophy of guaranteeing and maximizing the service it offers to its clients.

With this operational spin-off, Telefónica begins a strategic review of its portfolio in Latin America with the double objective of modulating exposure to the region, while creating the conditions to maximize its value through growth, consolidation and possible corporate operations.

This unit will be led by Alfonso Gomez, current head of Hispam Norte, who has extensive experience in the telco sector in the Latin American market. He has been responsible for the recent network operation in Mexico, the sale of the Central American units and the successful restructuring of Colombia Telecom, a company of which he was CEO. Aligned with the new strategy, this unit will depend on the General Directorate of Finance and Management Control, led by Laura Abasolo.

New organizational model

The fifth of the initiatives seeks to respond to the need to gain agility in the implementation of the necessary changes to provide better service to clients and take advantage of the group's scales and synergies.

"In recent years we have launched different initiatives to capture the benefits of digitalization, achieving important advances to date. Now, to gain agility and accelerate the execution of our strategy, it is time to evolve our operating model," explains the CEO of Telefónica.

For this reason, he continues, the role and operation of the corporate center will be adapted to the new reality, “focusing on those activities that provide differential value to the rest of the units and that allow us to capture the value of scale, eliminating some existing duplications with the structures of the countries” and with “a higher level of ambition in plans to simplify and digitalize operations.”

The company has expressly thanked the work carried out by the executives leaving the Executive Committee: Mariano de Beer, who during these three years as Chief Commercial Digital Officer, has successfully carried out the unit's restructuring mission, has contributed significantly to improving the digital product portfolio and accelerating the growth of digital revenues; and Bernardo Quinn, for a successful career of almost 30 years at Telefónica, assuming different positions of responsibility in the area of ​​B2B, Human Resources and, more recently, for his work and dedication at the head of Hispam Sur, in a very complex environment. Both will continue to be linked to Telefónica in non-executive positions.

Telefónica Spain

Telefónica Spain will adopt a new structure from now on, promoted by the executive president of Telefónica Spain, Emilio Gayo, which reinforces the functions of María Jesús Almazor, CEO of Telefónica Spain, increasing her responsibility for the company's income and resources.

Oscar Candiles, current Director of Strategy, BI and New Business, incorporates responsibility for wholesale revenue, as well as the Cabinet Office of the President and CEO.

Raquel Fernandez Leon assumes the direction of People, replacing Javier Delgado, who after a successful career at Telefónica, assuming different positions of responsibility, has promoted the transformation of the people policy at Telefónica Spain over the last three years, culminating in the signing of the new collective agreement, which provides a framework of labor stability for the coming years.

The figure of the Transformation Director is created, who will be responsible for the monitoring and execution of Telefónica Spain's transformation projects, and who is headed by Sergio Sánchez Gallego.

The directorates of the General Secretariat and Regulation (Nicolás Oriol), Finance and Management Control (Jesús Pérez de Urigüen), Security (Amador Madejón) and Communication (Juan Emilio Maíllo) continue in their functions and report to the president, bringing together the integral responsibility for the company's communication, both external and internal.

As for the areas under the responsibility of the CEO, the new General Public Client department is created, to which Pedro Serrahima, until now responsible for multi-brand development. In addition to his current responsibilities, he will also be in charge of delving into the customer relationship policies and processes that are being promoted across the group's brands.

With the aim of evolving the offer to the client with a comprehensive vision, the new Marketing and General Public Product direction was created with Sergio Osle at the helm, who adds these new responsibilities to his status as president of Movistar+.

Also reporting directly to the CEO is the new Business Management. Adrian Garcia Nevado, until now Territorial Director Center and Large Clients, is now responsible for the entire business of companies, both large clients and medium and small companies. With this new organization, Telefónica Spain's commitment to the corporate business, one of the main growth drivers of Telefónica Spain, will be reinforced.

Fernando Sánchez Villacorta, assumes the direction of Transversal Processes and Simplification, which integrates, in addition to its current responsibilities, the areas of billing, terminals and logistics, reporting directly to the CEO.

Likewise, the Network, Systems and IT management, led by Joaquin Mata, becomes dependent on the CEO, incorporating responsibility for TGT, the business unit responsible for the integration and development of corporate applications.

The four territorial directorates will also depend on the CEO, who will have executive responsibilities in institutional relations and in all activity related to the public sector. Additionally, they will ensure territorial coherence in the relationship with customers, both general public and companies, preserving the value of proximity.

Javier Zorrilla continues as Northern territorial director; Jerónimo Vílchez remains as Southern territorial director, while Marisa Urquía, who brings together extensive experience in the business field, will be the new Central territorial director. At the head of the Mediterranean Territorial management is José Manuel Casas, current CEO of Telefónica Ecuador. Kim Faura, until now Mediterranean Territorial Director, will assume a new role as Senior Advisor to the Presidency, from which he will be able to contribute his vision and experience.

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