Chat with this content: Summary, Analysis, News...
Share on Reddit
Telefónica: The Rise and Reinvention of Europe's Telecommunications Giant
A Century of Empire, Expansion, and Strategic Transformation
I. Introduction & Episode Roadmap
Picture Madrid in January 2025. At the Distrito Telefónica headquarters—a sprawling campus that symbolizes Spain's modern ambitions—a board meeting convenes under extraordinary circumstances. Marc Murtra, a British-born Spanish engineer who had spent the previous four years transforming Indra, Spain's defense and technology contractor, is about to take the reins of one of Europe's most storied telecommunications giants. The departure of José María Álvarez-Pallete, who had led Telefónica for nearly a decade, signals more than a leadership change—it marks a pivot point for a company that has defined Spanish corporate ambition for over a century.
With a reported revenue of €41,315 million in 2024 and an adjusted net profit of €2,304 million, Telefónica is a company that punches above its weight on the global stage. Telefónica is one of the world's leaders in the telecommunications industry, with headquarters in Madrid. The company is the main service provider in Spanish- and Portuguese-speaking markets.
Telefónica is the second largest corporation in Spain, behind the Santander Group. It operates under the Movistar and O2 brands, with Movistar being the largest broadband and phone provider in Spain. But numbers alone cannot capture this company's significance—Telefónica represents something deeper: Spain's century-long journey from peripheral European power to global economic participant.
The central question we explore is deceptively simple: How did a Spanish telephone monopoly, born in the chaos of 1920s Europe, become a global telecom empire spanning four continents—and what happens when that empire must contract?
The answer involves audacious bets on Latin America, transformative acquisitions in Europe, crushing debt loads, a strategic retreat that continues today, and now—perhaps most intriguingly—the entrance of Saudi Arabia's sovereign wealth machine into Spain's most strategically important company.
The themes that emerge are timeless: state monopoly to global expansion, Latin America's "New Conquest" by Spanish corporations, the pivot back to Europe, and the battle with more than €40 billion in debt that has shaped every strategic decision for the past decade.
II. Origins: The Birth of Spanish Telecommunications (1924–1945)
To understand Telefónica, we must travel back to a Spain that barely resembles the modern nation. It was Holy Saturday in 1924—April 19th specifically—when the seeds of Compañía Telefónica Nacional de España were sown in Madrid. Telephony was already almost half a century old when the seeds of the company were sown. It was the first clear attempt to organize in Spain that revolutionary service which consisted of speaking at a distance.
The story begins not in Madrid, but in Puerto Rico and Cuba, where two American brothers had already proven their ambitions knew no borders. The brothers Sosthenes and Hernand Behn, who had previously operated telephone companies in Puerto Rico and Cuba, set up ITT in 1920 as a U.S. holding company for their current and future enterprises. The companies were destined to become an international telephone system with corporate headquarters in New York. When in 1924 Spain was chosen for ITT's entry into Europe, local investors came forward, influential Spaniards were invited to serve on the board of the new subsidiary, and the goodwill of Miguel Primo de Rivera's authoritarian government was secured.
This was no ordinary corporate founding. The determination of the American company ITT—embodied in two brothers as enterprising as they are audacious, Hernand and Sosthenes Behn—the confidence of some initial investors such as Banco Urquijo and Banco Hispanoamericano, and that little bit of luck that is always needed to undertake something big, resulted in a company with American shareholders but clearly Spanish.
Estanislao de Urquijo y Ussía became the first chairman of Telefónica and would remain so for 21 years. The Marqués de Urquijo was linked to the family of one of the first Spanish banks to finance CTNE, and during his years in office the company went from being a dream to a key company for Spain.
CTNE was founded with a modest capital of one million pesetas divided into 2,000 shares of 500 pesetas each. By modern standards, this was a rounding error. Yet within months, the company had secured something far more valuable than capital. On August 25, 1924, the government was empowered by another royal decree to sign a contract with the new company, conferring upon it the monopoly for operating the national telephone service. CTNE's task was to acquire the telephone operations and premises belonging to the existing private companies, and to organize, integrate, develop, and modernize Spain's urban and trunk telephone networks.
One condition of the contract was that at least 80 percent of CTNE's employees must be Spanish nationals. This requirement would prove prescient—it ensured that Telefónica, though backed by American capital and expertise, would develop a fundamentally Spanish identity.
The company moved quickly. In its early years, CTNE rapidly developed infrastructure, operating 1,135 telephone exchanges by 1925 and constructing a 3,800-kilometer intercity network by 1926, which set a European record for length at the time. Spain, often dismissed as technologically backward, was suddenly building infrastructure at a pace that rivaled the continent's leaders.
One of the great milestones took place on October 13, 1928, when King Alfonso XIII and President Calvin Coolidge of the United States inaugurated the transatlantic telephone service—a symbol of Spain's newfound connectivity to the wider world.
But it was the company's architectural ambition that captured the public imagination. Telefónica's most emblematic headquarters—the Gran Vía building in Madrid—opened in July 1929. At 90 meters high, it was the tallest building in Europe when inaugurated. The building was more than an office—it was a statement of intent, a declaration that Spanish enterprise could compete on the world stage.
The good times would not last. The Spanish Civil War tore the country apart from 1936 to 1939, and the company navigated the conflict's treacherous waters—its infrastructure simultaneously vital to whichever side controlled a given territory. When General Francisco Franco emerged victorious, the relationship between state and company would fundamentally change.
The company was created in Madrid in 1924 as Compañía Telefónica Nacional de España (CTNE), with ITT among its major shareholders. In 1945, the state acquired by law a share of 79.6% of the company.
This nationalization transformed CTNE from a private company with government privileges into a de facto state enterprise. The American shareholders at ITT found themselves squeezed out, and Spain's telecommunications infrastructure became an instrument of national policy.
For investors seeking to understand Telefónica today, this origin story matters. The company has never been purely private. It emerged from state patronage, was nationalized, privatized, and now finds the Spanish government once again asserting significant influence through its 10% stake acquired in 2024. The dance between public and private interests is woven into Telefónica's DNA.
III. Nationalization & The Monopoly Years (1945–1990)
For nearly half a century after nationalization, Telefónica operated in a protected environment that modern telecommunications executives can barely imagine. The company was nationalized in 1945 and, under the control of the Spanish government, was the country's sole telephone operator until 1997. It became entirely privately owned in 1999.
Until the liberalization of the telecom market in 1997, Telefónica was the only telephone operator in Spain, where it retained a dominant position.
The monopoly years were characterized by steady, if unspectacular, progress. 1955 brought one of the great milestones of telephony in Spain with the installation of the one millionth telephone, making Spain the eleventh country in the world to reach this figure. The achievement was celebrated as evidence that Spain, despite its isolation during the Franco era, was modernizing.
Mobile telephony arrived in Spain in the 1970s thanks to Telefónica with a service for cars known as TAV (Automatic Telephone in Vehicles)—a precursor system of a technology that would experience its explosion in the 1990s. The service was primitive by today's standards, but it demonstrated Telefónica's willingness to experiment with emerging technologies.
In 1945, the state acquired by law a share of 79.6% of the company, later diluted by a capital increase in 1967. This partial dilution signaled the beginning of a long journey back toward private ownership, though the state remained firmly in control.
The company began its international expansion in the 1960s and 1970s, entering markets in Latin America and Europe. A significant milestone was the inauguration of Spain's first experimental earth station in 1964. In 1985, CTNE became the first Spanish company listed on the London Stock Exchange, marking a key moment in its evolution.
The international listing was significant—it exposed Telefónica to international capital markets and the discipline of foreign investors for the first time. The company listed on the New York Stock Exchange in 1987, further integrating it into global financial markets.
The Ley de Ordenación de las Telecomunicaciones (LOT) in 1988 led to the full automation of the company's telephone service and its rebranding as Telefónica de España, S.A. The name change signaled a new era—the company was preparing for competition, even if that competition remained years away.
These monopoly years built the infrastructure and institutional capabilities that would later enable global expansion. When liberalization came, Telefónica had accumulated five decades of technical expertise, customer relationships, and—most importantly—capital that it would deploy with remarkable aggression across Latin America and Europe.
IV. Privatization & The Mobile Revolution (1990–1997)
The early 1990s brought transformative change to Spain's telecommunications landscape. The country was preparing for membership in the European Union's single market, and protected national champions were an anachronism that Brussels would not tolerate indefinitely.
The company began its foray into the Internet arena in 1995 by launching InfoVia. The firm's mobile service offerings also began to develop rapidly, and by 1996 had secured three million users—eight out of every 100 Spaniards. The government fully privatized Telefónica in 1997, selling off its remaining 20.9 percent interest in the company.
The $4.4 billion offering—the largest in Spanish history—was followed by the creation of the Telecommunications Market Commission, which was developed to promote competition in the rapidly deregulating telecommunications industry. Led by Juan Villalonga—elected chairman and CEO in 1996 by Spain's Prime Minister Jose Maria Aznar—Telefónica quickly began to create ventures that would ensure its stature in the competitive market.
Juan Villalonga's appointment was itself a statement. He subsequently became CEO for Credit Suisse First Boston, Spain and Bankers Trust in Spain. In 1996, Villalonga was appointed chief executive officer of Telefónica, proposed by shareholders Argentaria, Banco Bilbao, La Caixa, and with endorsement of the Spanish Premier, Jose Maria Aznar.
Juan Villalonga Navarro was a Spanish businessman who had been a partner at McKinsey & Company in the 1980s, CEO for Credit Suisse First Boston and Bankers Trust in Spain in the early 1990s, and CEO of Telefónica from 1996 to 2000.
Villalonga came from an established Spanish family deeply entrenched in the economics and politics of the country. His great-uncle had been Governor of Catalonia and chairman of Banco Central. This was no technocrat—this was a member of Spain's elite, with the connections and ambition to transform Telefónica into something far larger than a Spanish phone company.
In four years under his leadership, Telefónica's market capitalization increased by $127 billion, securing the company's leadership position in Spain and turning Telefónica into an international telecommunications power. He also developed a successful model for acquisitions where transactions were made in stock.
The mobile revolution was central to this transformation. In 1990, Telefónica launched MoviLine, Spain's first analog mobile service. In 1994, it launched Movistar—a brand that would eventually become synonymous with mobile communications across the Spanish-speaking world. In 1994 Telefónica launched the mobile-telephone provider Movistar, under which it thereafter began integrating its brands in an effort to achieve a more uniform image.
One of the major milestones of the decade took place this year: Telefónica became a completely private company, in an operation in which the most optimistic forecasts were exceeded (191 million shares were placed) and the demand for shares exceeded 5.4 times the supply.
The privatization was not merely a financial transaction—it was a philosophical transformation. For the first time in half a century, Telefónica would be accountable primarily to shareholders rather than politicians. This shift enabled the aggressive international expansion that would follow.
In 1997, the European telecommunications market was liberalized, and Telefónica ceased to have a monopoly in Spain. Villalonga used the event to expand the company beyond Spain into other Spanish-speaking markets. In 1997, he entered the company into pre-BRIC Brazil.
The decision to privatize Telefónica in the mid-1990s was a pivotal moment. It transformed the company from a state-controlled monopoly into a competitive, publicly traded entity. This move spurred innovation, efficiency, and international expansion at a pace that would have been inconceivable under government ownership.
V. The Latin American "Conquest" (1990–2010)
The Strategic Rationale:
In the boardrooms of Madrid during the early 1990s, executives and politicians articulated a vision that harked back to Spain's imperial past while pointing toward a globalized future. Latin America represented not merely geographic expansion, but cultural homecoming.
With its origins in Spain, from the 1990s onwards Telefónica began an internationalization process that reached Latin America and Europe, with Argentina and Chile being the countries where this process began.
Telefónica led the Latin American expansion by Spanish companies in the 90s, paving the way for the likes of Repsol, Banco Santander, Banco Bilbao Vizcaya, and Endesa. This was corporate Spain's reconquista—a term used without irony in Madrid—and Telefónica was its vanguard.
Cándido Velázquez Gaztelu, Chairman of Telefónica from 1989 to 1996, expressed this philosophy bluntly: "For any Spaniard, Latin America is the prolongation of our own land. Our people have the same language and the same culture." The sentiment was romanticized, certainly, but it captured genuine competitive advantage. Spanish executives could negotiate in their native tongue, understand local cultural nuances, and draw on historical ties that competitors from other nations lacked.
Since Villalonga took charge of Telefonica, Spain's privatized telecommunications carrier, in 1996, the company's share price had increased fivefold. Through its aggressive expansion in Latin America and innovative media acquisitions, Telefonica had become one of the world's 50 largest corporations—and one of only 12 European companies worth more than $100 billion. Its dot-com subsidiary, Terra Networks, which had been part of Spanish business's reconquista of the Latin American market, was the most highly valued Internet company in Europe.
Execution & Scale:
In 1990, the firm acquired an interest in telecommunication network providers in Chile and in Telefónica de Argentina. By the late 1990s, over 50 percent of its 37 million fixed lines were outside of its home country. Telefónica had invested nearly $10.9 billion in the Latin American region and controlled nearly 40 percent of its telecommunications.
Internationalization reached Brazil, where "a consortium was created, formed by Telefónica (73%), RBS (17%), Telefónica Argentina (3%) and CTC (7%) for the purchase of 35% of CRT (Companhia Riogrande de Telecomunicaçoes), the fourth largest operator in Brazil, with fixed and mobile services and the first to be privatized in that country."
Internationalization reached Venezuela, where Telefónica became the successful bidder in the privatization of the state-owned operator, acquiring 40% of the shares.
With the privatization of Compañía Peruana de Teléfonos (CPT) and Entel-Perú and the acquisition of 35% of its shares, Telefónica took control of 90% of the country's telecommunications.
By 2004, Telefónica had become the leading mobile operator in Latin America. This achievement demonstrated the company's successful expansion into international markets and its ability to adapt to local market dynamics while leveraging its technological expertise and brand power.
The Brazil Play - Vivo:
Brazil represented Telefónica's most audacious Latin American bet. Telefónica entered the Brazilian market in 1998, when the restructuring and privatisation of Telebrás was taking place. Later, in 2002, Telefónica and Portugal Telecom created a Joint Venture to operate in the Brazilian mobile market and they began their commercial operations under the name Vivo in April 2003. 2010 consolidated Brazil's position as an international economic reference and it was a key year for Telefónica in the country.
Seven years after the creation of Vivo in Brazil as a joint venture with Portugal Telecom, and after getting the green light from the Brazilian regulator Anatel, Telefónica takes a decisive step and takes control of Vivo by acquiring 50% of Brasilcel, becoming the leading integrated operator in Brazil.
Telefónica owns a majority stake in the Brazilian mobile operator Vivo, having agreed on 28 July 2010 to buy Portugal Telecom's stake in the firm for €7.5 billion, after increasing its original offer by €1.8 billion over three months of incident-rich negotiations.
The Vivo acquisition was classic Telefónica—aggressive, patient when necessary, and willing to increase bids substantially to secure strategic assets. The €1.8 billion sweetener represented Telefónica's conviction that Brazil would become one of the world's great telecom markets.
Brazil—where Telefónica operates under the Vivo brand—remains a standalone business unit with strong financials, over 102 million mobile customers, and nearly 7.3 million broadband users.
Today, Telefónica Brazil remains the crown jewel of the Latin American portfolio—the one major market from which Telefónica has no intention of retreating.
VI. The O2 Acquisition: Europe's Biggest Bet (2005–2006)
The Deal:
While Latin America consumed much of Telefónica's attention in the 1990s, executives recognized that sustainable growth required a stronger European footprint. Germany and the UK represented two of the continent's largest and most developed telecom markets—yet Telefónica had no meaningful presence in either.
On 30 November 2005, O2 agreed to a takeover by Telefónica, a Spanish telecommunications company, for £17.7 billion (£2 per share) in cash. It went through finally in 2006. According to the merger announcement, O2 retained its name and continued to be based in the United Kingdom, keeping both the brand and the management team.
On 26 January 2006, Telefónica completed its £17.7 billion (€25.7 billion) acquisition of the UK-based operator O2 which also provided mobile phone services in Germany under the O2 brand.
The purchase of O2 was the largest operation by a Spanish company abroad—a milestone that signaled Spain's emergence as a serious player in European corporate dealmaking.
The network was launched in 1985 as Cellnet, a joint venture between British Telecom (60%) and Securicor (40%), and later rebranded BT Cellnet following BT's acquisition of Securicor's share. Cellnet was one of the two original cellular network operators in the UK, alongside Vodafone. In 2001, BT spun off its BT Wireless division as mmO2 plc (later O2 plc), with the UK network adopting the O2 brand in 2002. O2 plc was acquired by Spanish telecommunications firm Telefónica in 2006.
The Strategic Logic:
The combination with O2 is a logical step for Telefónica in pursuing its strategic goal of providing its shareholders with both growth and cash returns. Telefónica believes that the combination with O2 will: accelerate Telefónica's superior growth profile relative to its peers; provide enhanced scale by entering two of Europe's largest markets, Germany and the UK, with critical mass.
César Alierta said: "O2 is an excellent company that, driven by a top class management team, has been able to become one of the highest growth mobile operators in Europe. Its integration in the Telefónica group will enhance our growth profile, it will allow us to gain economies of scale, it will open the group to the two largest European markets with sizeable critical mass and it will balance our exposure across business and regions."
Under the terms of the acquisition, Telefónica agreed to retain the "O2" brand and the company's UK headquarters.
Following the purchase, Telefónica merged Telefónica Deutschland and O2 Germany to form the current business Telefónica Germany.
The O2 acquisition transformed Telefónica from a primarily Spanish-Latin American operator into a truly pan-European player. The company now held major positions in four of Europe's largest markets: Spain, Germany, the UK, and later the Czech Republic.
The European market, which we had entered the previous year with the acquisition of the Czech operator Cesky, was extended to the United Kingdom, Germany and Ireland, where we added around 25 million customers. In the same year Telefónica also obtained the third licence in Slovakia and started operating under the O2 brand as well.
As a result, we manage more than 200 million customers worldwide and have operations in 23 countries. At that time we decided to move away from a service-based organisation to a geographic organisation and created three divisions: Telefónica Spain, Telefónica Latin America and Telefónica O2 Europe.
VII. The Dot-Com Hangover & European Consolidation (2007–2015)
The euphoria of global expansion eventually collided with financial reality. The collapse of the dot-com boom in the late 1990s and early 2000s had lasting consequences for Telefónica's balance sheet and strategic options.
In 1998, Villalonga launched Telefónica Interactiva (also known as Terra Networks), Telefónica's Internet portal. He aggressively acquired several local start-ups in Spain and the main Latin American markets, turning Terra into a major internet company. These acquisitions included Ole (Spain), Zaz (Brazil), Infosel (Mexico), Gauchonet y Donde (Argentina) and Chevere (Venezuela).
In November 1999, Terra had a high-profile IPO in the U.S. and Spain, and its shares rose from the initial price of €11.81 to €157.65 within three months. He then had Telefónica purchase the American Internet search company, Lycos, creating one of the world's largest Internet companies. It opened the U.S. market of 30 million Spanish speakers to Terra and provided access to parts of the world where Telefónica did not yet have a foothold, such as Asia. The purchase for $12.5 billion in stock in May 2000 created a new company known as Terra Lycos Inc.
The Terra Lycos acquisition would prove disastrous—a monument to dot-com hubris that destroyed billions in shareholder value when the bubble burst. Villalonga himself departed amid scandal in 2000, though he was later cleared of insider trading charges.
In June 2000, the Madrid daily El Mundo claimed that Villalonga had been involved in insider trading. Amid these rumors and pressure from the Spanish government, Villalonga resigned as chairman of Telefónica in July 2000. In August 2000, the Spanish stock market commission, the Comisión Nacional del Mercado de Valores (CNMV), cleared Villalonga of insider trading charges.
While both Telefónica and Villalonga denied the insider trading accusations, Cesar Alierta was named to replace Villalonga as chairman.
César Alierta would lead Telefónica through the challenging decade that followed—navigating the dot-com wreckage, completing the O2 integration, and managing an increasingly complex global portfolio.
The European Commission proved a persistent irritant. On 5th July, 2007, the European Commission ordered Telefónica to pay a record antitrust fine of almost €152 million for activities in the Spanish broadband market which, according to EU competition commissioner Neelie Kroes, "harmed Spanish consumers, Spanish businesses and the Spanish economy as a whole."
In 2009, Telefónica sought new partnerships to navigate an increasingly competitive landscape. China Unicom agreed to a $1 billion cross-holding with Telefónica. In January 2011, the two partners agreed to a further $500 million tie-up—a relationship that signaled Telefónica's awareness that global telecom increasingly required Asian connections.
Germany became a focus of consolidation efforts. Telefónica Germany purchased competitor E-Plus on 1 October 2014. As part of the purchase, Telefónica reduced its stake in its subsidiary to 62.1%. The merged network became Germany's largest by customers—a remarkable turnaround for what had been a struggling fourth-place operator.
In the early 2010s, Telefónica grappled with escalating net debt, which climbed to €58.3 billion by June 2012 from €56.3 billion at the end of 2011, strained by prior acquisitions such as the €7.15 billion purchase of Vivo in Brazil in 2010 and the broader European sovereign debt crisis impacting Spain. The company recorded its first quarterly net loss since 2002 in Q3 2011, at €981 million, primarily due to €1.2 billion in restructuring charges for its Spanish operations amid intense competition and economic contraction.
To preserve liquidity, Telefónica suspended its 2012 dividend and share buybacks while cutting executive pay, measures analysts viewed as necessary to refinance €14.5 billion in maturing debt over the next two years against projected free cash flow of €9.6 billion.
The dividend suspension was a body blow to shareholders who had relied on Telefónica's generous payouts. It signaled that debt reduction had become existential—the company's very survival depended on repairing its balance sheet.
VIII. INFLECTION POINT #1: The Debt Crisis & Strategic Pivot (2016–2020)
The Problem:
By the end of 2016, net debt at Telefónica stood at €48.595 billion—a staggering figure that threatened to overwhelm the company's ability to invest, compete, and return capital to shareholders.
In late 2016, the team considered selling off its UK operations, though with the success of O2 today there is some relief this project failed. It also attempted to IPO Telxius, though this was also a non-starter at the time. In January 2015, Li Ka-shing entered into talks with Telefónica to buy O2 for around £10.25 billion, aiming to merge it with his subsidiary Three. The acquisition was officially blocked by the European Commission on 11 May 2016, which argued that the merger would reduce consumer choice and lead to a higher cost of services. Telefónica began to seek a stock market flotation of the business instead.
The EU's blocking of the Three/O2 merger was a double-edged sword. On one hand, it prevented a significant deleveraging transaction. On the other, it preserved what would become one of Telefónica's most valuable assets—the UK business that later merged with Virgin Media.
The Telxius Solution - Infrastructure Monetization:
Telefónica's leadership recognized that its infrastructure—particularly towers and submarine cables—represented enormous value that traditional financial metrics poorly captured. The solution was creative: spin off infrastructure assets into a separate vehicle that could attract external investment while allowing Telefónica to retain operational control.
Telxius Telecom S.A. was created in 2016 as a global telecommunications infrastructure company, owned by Telefónica Infra. On February 21, 2017, Telefónica announced an agreement reached with KKR for the sale of up to 40% of Telxius, for a total amount of €1,275 million.
Telxius owned and operated a large portfolio of nearly 16,000 telecommunications towers in five countries. It also managed an international network with approximately 65,000 kilometers of submarine fibre optic cables.
On July 27, 2019, Telefónica reached an agreement with Pontegadea—the investment vehicle of Amancio Ortega, founder of Zara and the world's wealthiest Spaniard—for the sale of 9.99% of Telxius for €378.8 million. The Ortega investment carried symbolic weight—Spain's richest man was betting on Telefónica's infrastructure strategy.
The Core Markets Focus:
More recently, Telefónica has focused on streamlining its operations by concentrating on key markets (Spain, Brazil, UK, and Germany) and divesting non-core assets, such as the sale of its Telxius towers. This strategy aims to improve capital efficiency, reduce debt, and enhance shareholder value.
In the mid-2010s, Telefónica made a strategic shift towards digital transformation, investing heavily in new technologies such as cloud computing, cybersecurity, and IoT. This transformation aimed to position Telefónica as a leading provider of digital services—not merely a connectivity pipe.
IX. INFLECTION POINT #2: The Great Tower Sale & Virgin Media Merger (2020–2021)
Telxius to American Tower:
The decisive moment came in January 2021, when Telefónica announced a transaction that would fundamentally reshape its capital structure.
Telefónica informs that its subsidiary Telxius Telecom has signed an agreement with American Tower Corporation for the sale of its telecommunications towers division in Europe (Spain and Germany) and in Latin America (Brazil, Peru, Chile and Argentina), for an amount of 7.7 billion euros, payable in cash.
The agreement establishes the sale of a number of approximately 30,722 telecommunication tower sites and comprises two separate and independent transactions (on one hand, the Europe business and, on the other hand, the Latin American business), setting the respective closings once the corresponding regulatory authorizations have been obtained.
American Tower expected the assets to generate approximately $775 million in property revenue, approximately $410 million in gross margin, and approximately $390 million in Adjusted EBITDA at current foreign exchange rates, in their first full year in its portfolio. This implies an Enterprise Value / Adjusted EBITDA multiple of less than 26x.
The sales multiple is equivalent to 30.5x EBITDA (adjusted for the purchase of towers in Germany in June 2020). Telefónica will garner a capital gain of around 3.5 billion euros.
Telefonica stated that it plans to use the proceeds of the sale, which include a capital gain of approximately €3.5bn, to reduce its net financial debt by €4.6bn.
The President of Telefónica, José María Álvarez-Pallete, said that "this is a deal that makes strategic sense within our roadmap. American Towers was our second supplier after Telxius." He added that "after this great operation we will continue to focus on our most ambitious objectives: the integration of O2 with Virgin in the United Kingdom, the purchase of Oi mobile in Brazil and the reduction of debt."
The Virgin Media O2 Joint Venture:
Just months later, Telefónica completed another transformative transaction—one that reshaped the competitive landscape of UK telecommunications.
The merger was completed on 1 June 2021, with Liberty Global and Telefónica each holding a 50% stake in Virgin Media O2, the new holding company for the businesses. This represented the largest ever UK telecoms deal, and the biggest UK merger in a decade.
Virgin Media O2 is a British mass media and telecommunications company based in Reading, England. The company was formed in June 2021 as a 50–50 joint venture between Liberty Global and Telefónica through the merger of their respective Virgin Media and O2 UK businesses, after approval by the Competition and Markets Authority.
The combination created a stronger fixed and mobile competitor in the UK market, supporting the expansion of Virgin Media's giga-ready network and O2's 5G mobile deployment for the benefit of consumers, businesses and the public sector. The joint venture is expected to deliver substantial synergies valued at £6.2 billion on a net present value basis after integration costs and will create a nationwide integrated communications provider with £11 billion of revenue.
The deal made Virgin Media valued as being worth more than O2, however Liberty Global agreed to pay a £2.5 billion equalisation payment to Telefónica, in part due to Virgin Media's debt level.
Full year results showed that in 2024, Virgin Media O2 generated revenue of £10,680.5 million. This was a slight year on year decline, down from £10,912.7 million (full year 2023). The company reports having 45.7 million mobile connections and 5.8 million fixed line customers.
The Virgin Media O2 joint venture achieved what the failed Three merger could not—it created a powerful converged fixed-mobile competitor with the scale to challenge BT and the investment capacity to continue network upgrades. For Telefónica, the structure was elegant: it retained significant exposure to the UK market while sharing capital requirements with Liberty Global.
X. INFLECTION POINT #3: Latin American Retreat & Saudi Intrigue (2019–2025)
The Strategic Withdrawal:
In line with its ongoing "asset portfolio management policy" and the long-term vision of its new executive chairman Marc Murtra, Telefónica has agreed the sale of yet another business unit in Latin America. Telefónica has been offloading Latin American units at an increasing pace over the past year or so, having sold its business in Colombia to Millicom in July last year and reaching a deal to sell its operations in Argentina to Telecom Argentina for $1.245bn in February this year.
For Telefónica, the move takes it one step further towards a portfolio that is focused on major markets with growth potential, and for the giant Spanish telco it doesn't see a great deal of value in Latin America. The operations in Colombia, Argentina, Mexico and Peru are all part of the telco's Telefónica Hispanoamérica division, which is no longer regarded as strategic, as Telefónica has been aiming to "gradually reduce exposure to Hispanoamérica" for the past few years.
In 2019, América Móvil acquired Telefónica's operations in Guatemala and El Salvador for $648 million. The first countries to suffer the change of course were Guatemala, El Salvador, Costa Rica, Nicaragua, and Panama. In the case of the first two, the departure of Telefónica benefited América Móvil, owned by Carlos Slim—Telefónica's longtime rival across Latin America.
In February 2025, the Spanish group agreed to sell Telefonica Argentina (Movistar) to rival domestic operator Telecom Argentina (Personal) in a deal valued at $1.245 billion.
Telefonica agreed to sell its Peruvian unit in April to Argentina's Integra Tec International for about 900,000 euros ($1.04 million). Its Peruvian unit had filed for bankruptcy protection in February. Telefonica booked 1.7 billion euros in capital losses in the first quarter on the sale of its units in Peru and Argentina.
The Peru sale price—€900,000 for an operation that once generated billions in revenue—starkly illustrated how quickly value can evaporate when market conditions deteriorate and regulatory disputes mount. The sale in Peru comes after Telefónica launched a restructuring process due to serious challenges, including intense competition, tax issues and government decisions that have hit its business hard. Telefónica del Perú was the second-largest operator in the country with 13 million customers, but its financial performance had been declining.
Since 2019, the telecom giant has sold off billions in assets across Central and South America, wrapping up deals in countries from Panama to Argentina. These exits—a response to low returns in most Spanish-speaking countries—include the $1.25 billion sale of its Argentina business, offloading Peru's operations for just $1 million, and selling Colombian, Uruguayan, and Ecuadorian units to Millicom for a combined $813 million.
Telefónica plans to divest the majority of its Latin American business in order to focus on the core markets UK, Spain, Germany and Brazil and add €2 billion in revenue with this programme.
The Saudi STC Investment Drama:
In September 2023, a transaction was announced that would reshape Telefónica's shareholder base and trigger geopolitical anxiety in Madrid.
In September 2023, it was announced stc Group had acquired a 9.9% stake in the Madrid-headquartered multinational telecommunications company, Telefónica, S.A. The deal was worth €2.1 billion—making stc Group the company's largest shareholder.
In September 2023, Saudi Arabia's telecom, STC Group, became Telefónica's largest shareholder, with a 9.9% holding, increasing its stake to €2.1 billion ($US2.23 billion), through shares and convertible financial instruments. Announced in December 2023, the Spanish government subsequently acquired a 10% stake in Telefónica, valued at $2.2 billion, in May 2024, to offset the telecom's Saudi ownership stake, through state holding company SEPI.
The Spanish government's response was swift and revealing. Since the September 2023 announcement, the debate over Saudi investment has become a litmus test of Europe's attitude to investments from authoritarian countries in strategic industries. A lucrative Saudi vote of confidence in Telefónica could help the struggling telecom burdened by billions of euros in debt. But it also could give Saudi Arabia too much sway over Spain's telecom and internet infrastructure.
Earlier this year, the Spanish government concluded its purchase of a 10 percent stake in Telefónica, thus ensuring it became the largest shareholder. The stake was purchased through the state-holding company Sociedad Estatal de Participaciones Industriales (SEPI).
After the Saudi plans became public, the Spanish government secured a 10% stake, and the Spanish investment group CriteriaCaixa acquired 9.9%, making Madrid reportedly more comfortable about the Saudi investment.
Saudi Arabia's STC Group has received the green light from the Spanish government to increase its stake in telecoms group Telefonica. The approval allows the Saudi telecom to raise its holding from 4.97 percent to 9.97 percent and appoint a board member.
On the international front, stc received approval from the Spanish Council of Ministers to increase its voting rights in Telefónica from 4.97% to 9.97%, along with the right to appoint a member to the company's Board of Directors.
In January 2025, Murtra was appointed executive chairman of Telefónica, succeeding José María Álvarez-Pallete, and tasked with adapting the company to its new shareholding structure while developing new strategy and lobbying regulators to lessen barriers to European telecom mergers.
XI. The "New Telefónica": Digital Services & Tech Pivot (2018–Present)
Telefónica Tech:
Recognizing that connectivity alone would become increasingly commoditized, Telefónica launched an ambitious pivot toward digital services—cloud computing, cybersecurity, IoT, Big Data, and artificial intelligence.
From Telefónica Tech, Telefónica's digital business unit, we have contributed to the Group's results by growing our annual revenues by 10%, to €2,065 million.
"Strategy Analytics believes that Telefónica Tech is well positioned to benefit from growing demand for Cyber Security, IoT, Cloud, Big Data and AI solutions from companies embracing digital transformation. Relevant acquisitions, partnerships, and alliances are key to Telefónica's increased role in supporting digital transformation and moving beyond the role of connectivity provider."
Telefónica Tech consolidates its leading position for the third consecutive year in cybersecurity services by Avasant's industry analysts. The analyst firm recognizes how Telefónica Tech offers cutting-edge services to secure the network, including optimized cloud access and IoT device management, and drives the application of Artificial Intelligence in the detection and managed response to cyber threats.
Telefónica Tech announces a new agreement with Microsoft to bring next-generation cybersecurity services to enterprises around the world signed at the RSA conference being held in San Francisco. This collaboration will integrate Microsoft's advanced security and artificial intelligence solutions with Telefónica Tech's operational cybersecurity expertise. Customers will benefit from proactive, integrated, automated and real-time security management.
Telefónica Tech is a managed security services provider (MSSP), recognized 2nd on MSSP Alert's Top 250 Global MSSP list in 2023. The company offers organizations access to a team of highly qualified cybersecurity experts without the need to invest in internal technology and equipment. In 2023, Telefónica Tech was recognized by Microsoft as Partner of the Year in Spain.
Regarding Telefónica Tech, revenue growth rate improved quarter on quarter to over 12% year-on-year in Q2 2025, with bookings growing as well.
New Leadership Under Marc Murtra:
Marc Murtra has been Chairman & CEO of Telefónica S.A. since January 2025, a member of the Board of Directors of Telefónica S.A. and member of the Board of Trustees of the Fundación Telefónica.
Mr. Álvarez-Pallete, in response to said request, tendered his resignation as a Director, which was accepted by the Board of Directors. The Board of Directors has unanimously expressed its deepest gratitude to Mr. José María Álvarez-Pallete for the years of work and collaboration with the Telefónica Group and, specially, for the many services rendered and for his extraordinary effort, dedication and contribution during his long professional career in the Group.
The son of a cardiothoracic surgeon, he was born and raised in Blackburn, England. He moved to Barcelona and studied industrial engineering and specialized in Machine Mechanics at Polytechnic University of Catalonia. Afterwards, he completed his studies with an MBA in New York, at the Leonard N. Stern School of Business, where he learned from economists such as Paul Krugman and Paul Samuelson.
He served as Chairman of Indra from May 2021 until January 2025.
He has dedicated several years to public service, where he specialized in Digital Strategy, Digital Transformation, and public-private partnerships. In this role, he served as General Director of Red.es, as well as Chief of Staff to the Minister of Industry, Tourism, and Trade of the Government of Spain.
New CEO Marc Murtra has opted to turn around Telefónica by slashing dividends 50% next year to help shrink leverage and fund investments. Telefónica has a 22-billion-euro market value and 28 billion euros of net debt. A 10% selloff after the Tuesday strategy announcement, however, suggests that investors see the pain but not the long-term gain.
Murtra, who took over at the Spanish telco in January, faced tough decisions to strengthen the balance sheet. He wants to get net debt down to 2.5 times EBITDA by 2028, compared with 2.9 today. At the same time, Murtra hopes to grow via M&A in the company's core markets and expand its offerings in cybersecurity and cloud computing.
Murtra is targeting compound annual revenue and EBITDA growth of between 1.5% and 2.5% from 2025 to 2028. At the midpoint, the goal is not really any higher than the average rate of expansion that analysts expect for Telefónica's peers, including Orange and Telecom Italia, over the same period.
XII. Financial Position & Current Performance
2024 Results:
The Group ends a solid year and meets all financial targets set for 2024: revenue increase by 1.6%; EBITDA rises by 1.2%; EBITDAaL – CapEx grows by 1.6%; CapEx-to-revenue ratio stands at 12.9%; and cash flow generation increases by 14.1%.
The strength of the business and the favourable commercial momentum of Telefónica's main markets have led to revenue growth of 1.6% in 2024, to €41,315 million, and 5.4% in the fourth quarter of the year. The good figures for the quarter are also reflected in the main segments, with growth of 6.5% in residential revenues and 10% in the business segment. For the whole year, residential revenue has increased by 2.5% and business revenue by 4.8%.
Adjusted net income, excluding extraordinary impacts, reaches €2,304 million in 2024.
Net financial debt fell to €27,161 million and the Group's debt ratio fell to 2.58x EBITDAaL.
Spain experienced its first year of growth in all key divisions on an annual basis since 2018, as well as the lowest churn since 2013.
Balance Sheet Position:
At December 31, 2024, the average maturity of net financial debt (27,161 million euros) was 11.34 years (including undrawn committed credit facilities).
Telefónica financing activity has allowed to maintain a solid liquidity position of €18,649m (€10,049m of undrawn committed credit lines; €9,535m maturing over 12M). As of Jun-25, the Group has covered debt maturities over the next three years and the average debt life stood at 10.9 years.
Telefónica's 6-K shows stable core earnings but a €1.29 bn loss after Argentina & Peru exits; net debt steady at €27.6 bn.
Furthermore, net debt will be reduced to EUR 26.0 billion after the sales of Telefónica Ecuador, Uruguay, and Colombia, and acquisition of the 50% of Fibercell. We maintain ample liquidity, which covers debt maturities over the next three years.
2025 Guidance:
The company sets as new financial guidance for 2025 year-on-year organic growth in revenue, EBITDA, and EBITDAaL-CapEx; CapEx over sales below 12.5%; FCF similar to 2024; and leverage reduction.
In addition, the company confirms a cash dividend of 0.30 euros per share for 2025, payable in two tranches, the first in December 2025 (0.15 euros) and the second in June 2026 (0.15 euros).
XIII. Bull Case vs. Bear Case
The Bull Case:
-
European Consolidation Opportunity: Telefónica is positioned to benefit from—and potentially lead—European telecom consolidation. The company has scale in four major markets and a new chairman explicitly tasked with lobbying regulators to lessen barriers to mergers. Telefonica is exploring plans for a deal that would allow it to buy out its US joint venture partner Liberty Global. Marc Murtra, the Telefonica chairman, has held discussions with advisers though no formal proposals have yet been drawn up. Telefonica could look to take full control of VMO2 as part of a broader effort to build scale across Europe.
-
Telefónica Tech Growth Engine: The digital services division is growing at double-digit rates with significant runway. More than 7,000 professionals with expertise in digital technologies in Cyber Security, Cloud, IoT, Big Data, Artificial Intelligence and Blockchain. This positions Telefónica to capture value as enterprises increasingly outsource digital transformation.
-
Brazil Stability: Brazil—where Telefónica operates under the Vivo brand—is not part of the Hispanoamérica division. It remains a standalone business unit with strong financials, over 102 million mobile customers, and nearly 7.3 million broadband users.
-
Deleveraging Progress: Net debt has declined from nearly €50 billion in 2016 to approximately €27 billion today—a remarkable transformation that provides financial flexibility for strategic moves.
-
Infrastructure Asset Optionality: Telefónica retains significant submarine cable and fiber infrastructure that could be monetized through similar structures to the tower sale if needed.
The Bear Case:
-
Growth Targets Underwhelming: The fact that Murtra expects sales and EBITDA to grow at the same pace suggests no margin improvements, for all the talk of efficiency.
-
Dividend Cut Signals Financial Strain: The Spanish group's new plan involves a 50% dividend cut to trim leverage and fund investments. Yet its targets are modest, and the upside from M&A and a cybersecurity push is still uncertain. A 10% share-price fall suggests investors aren't yet swayed by the future rewards.
-
VMO2 Challenges: During the latest quarter, Virgin Media O2 reported that its fixed-line customer numbers dropped to 5.7 million for Q2, down by 51,000 subscribers. For the quarter, Virgin Media O2 posted revenue of £2.175bn ($2.88bn), down 0.4 percent year on year.
-
Latin American Exit Losses: Losses ran up quickly, with €1.7 billion in capital hits just in the first quarter of 2024, highlighting the cost of refocusing.
-
Governance Complexity: Three major shareholders—the Spanish government (SEPI), CriteriaCaixa, and STC—each holding approximately 10% creates potential for conflicting strategic priorities. The government's intervention in the CEO succession signals that political considerations may sometimes override commercial logic.
Porter's Five Forces Analysis:
| Force | Assessment |
|---|---|
| Threat of New Entrants | Low in core markets—massive infrastructure requirements and regulatory barriers protect incumbents |
| Bargaining Power of Suppliers | Moderate—equipment vendors like Nokia, Ericsson, and Huawei have some leverage, but Telefónica's scale provides bargaining power |
| Bargaining Power of Buyers | High—consumers can easily switch carriers, forcing operators to compete on price and bundle services |
| Threat of Substitutes | Moderate—OTT services (WhatsApp, Zoom) substitute for voice/messaging but increase data demand |
| Competitive Rivalry | High—mature European markets feature intense competition from Vodafone, Orange, Deutsche Telekom |
Hamilton Helmer's 7 Powers Framework:
| Power | Telefónica's Position |
|---|---|
| Scale Economies | Present—network infrastructure exhibits significant scale economics |
| Network Effects | Limited—telecom networks have interconnection requirements that reduce network effects |
| Counter-Positioning | Weak—incumbents can easily replicate digital services strategy |
| Switching Costs | Moderate—bundled services and contract periods create some friction |
| Branding | Strong in home markets—Movistar in Spain/LatAm, O2 in UK/Germany have recognition |
| Cornered Resource | Spectrum licenses and fiber infrastructure represent exclusive assets |
| Process Power | Developing—Telefónica Tech's cybersecurity expertise may represent emerging process power |
XIV. Key KPIs to Monitor
For investors tracking Telefónica's ongoing performance, three metrics deserve particular attention:
1. Net Financial Debt / EBITDAaL Ratio
This leverage ratio is the single most important metric for understanding Telefónica's strategic flexibility. Murtra wants to get net debt down to 2.5 times EBITDA by 2028, compared with 2.9 today. Progress toward this target will determine whether Telefónica can pursue M&A, maintain dividends, and invest in network upgrades. Every quarterly report should be evaluated against this trajectory.
2. Telefónica Tech Revenue Growth Rate
Revenue growth rate improved quarter on quarter to over 12% year-on-year in Q2 2025. This division represents Telefónica's primary avenue for escaping the low-growth trap facing traditional telecom. Sustained double-digit growth would validate the strategic pivot; deceleration would signal that competitive pressures are overwhelming the diversification strategy.
3. Spain ARPU (Average Revenue Per User) and Churn
Spain experienced its first year of growth in all key divisions on an annual basis since 2018, as well as the lowest churn since 2013. Spain remains Telefónica's most important market, contributing substantial cash flow that funds debt service and investment. ARPU trends and churn rates signal whether Telefónica can maintain pricing power in an intensely competitive market.
XV. Legal and Regulatory Considerations
Material Risks:
-
Strategic Company Designation: Telefónica is a national defence service provider in Spain, where the government has a regulatory role in its M&A, including shareholders. This designation subjects major transactions and shareholding changes to government review, potentially limiting strategic options.
-
STC Board Representation: With Spanish government approval now granted, STC gains the right to appoint a board member. Investor concerns about Saudi influence on strategic decisions remain despite government safeguards.
-
European Commission Scrutiny: Past antitrust fines and ongoing regulatory attention suggest any significant M&A activity will face detailed competitive review.
-
Latin American Tax Disputes: Telefonica has set aside almost €800 million for taxes in Peru. The decision for the Peruvian opco to file for insolvency coincides with the start of arbitration hearings that the opco filed four years ago to challenge tax bills in a dispute whose roots stretch back more than 20 years.
XVI. Conclusion: A Century of Reinvention
Telefónica's story is one of continuous transformation—from 1920s startup to Franco-era monopoly, from privatization pioneer to Latin American conquistador, from debt-burdened conglomerate to focused European operator.
The company that began with 2,000 shares and a modest Madrid office now generates over €41 billion in annual revenue and serves hundreds of millions of customers across four continents. It has survived civil war, dictatorship, liberalization, dot-com bubbles, sovereign debt crises, and now navigates the complexities of Saudi investment alongside Spanish government ownership.
Marc Murtra inherits a company at another inflection point. The Latin American retreat is nearly complete. The balance sheet, while still burdened, has improved substantially. The Telefónica Tech division offers a path to higher-margin growth. The Virgin Media O2 joint venture creates optionality in the UK.
Yet challenges remain formidable. European telecom remains intensely competitive with limited organic growth. The dividend cut signals that financial constraints still bind strategic choices. The governance structure—with government, Saudi, and Spanish financial interests all represented—creates complexity that pure commercial logic cannot resolve.
For long-term investors, Telefónica represents a bet on European telecom consolidation and digital transformation. The company has demonstrated remarkable resilience over a century of operation. Whether that resilience translates into attractive returns depends on execution of the strategic pivot now underway—and on forces far beyond any single company's control.
What remains certain is that Telefónica's next chapter, like all those before it, will be written against the backdrop of broader political, technological, and economic forces that have always shaped this most Spanish of institutions. The company that once built Europe's tallest building continues reaching for the sky—even as it carefully manages how much it can afford to invest in that ambition.
Spotify
Apple Podcasts
Amazon Music
Audible
YouTube
Castbox
Pocket Casts