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Economics & Finance

A tale of two Telefonicas - Spain rings Latin America for help

Angela Garvey Hammond |

At one end of the line is Telefonica of Spain - cutting costs, sacking thousands and fighting to hold on to mobile customers in a stagnant home economy. At the other end is its regional business in Latin America where strong profits, new markets and a growing middle class are all helping to prop up the telecoms giant. But for how long?

 

Maria Alba left Venezuela in the mid 1990s and has been living with her family in the UK ever since. She has not been back but still keeps in daily contact with her friends in Latin America. One runs his own business, a mobile phone shop, the others all work for big mulitnationals. "They are hooked on their BlackBerrys and iPhones; texting, sending photos every other day almost and constantly trying to persuade me to upgrade my phone!" laughs Maria.
 
Maria's friends are all part of Venezuela's new middle class--aspirational, ambitious and keen to embrace any new technology they can get hold of. Telefonica knows this well and is working flat out to get these professionals and the millions of others across the continent signed up to its network before its competitors snaffle them up. Latin America has become a rich market. The region accounts for nearly half of Telefonica's worldwide revenue and two thirds of the groups 290 million customers live here.
 
Jose Maria Lopez is Chairman and Chief Executive of Telefonica Latin America. He sees his region simply as the "eternal promise". He bursts with pride as he talks about his patch "We have one of, if not the most talented team in the region. You will find Brazilians in Mexico or Argentinians in Venezuela, we have been able to create a mix of talent (which) has helped us to catch up and (build) the position we have in the region." The Latin American boss is banking on his pick-and-mix style of talent to turn around the whole company and bring back a little cheer into the boardroom. It's certainly needed after the last set of results.
 
The first quarter numbers were weaker than the market was expecting and while the Latin American side of the business shone through,Telefonica's domestic market weighed down heavily. Spain is still firmly in the doldrums; unemployment is running at more than 21 percent and cash-strapped Spaniards are now taking their time to shop around for cheaper mobile deals. Just to rub salt into its wounds, Telefonica has had to abandon its sell-off of Atento, its Spanish call centre business, because there was not enough interest from investors, even after the price was dropped by 10 percent.
 
So, it's frustrating times for the Spanish side of the business and is mounting pressure on Jose Maria Lopez to pull the group through. His strategy, he says, has always been to invest. He and his predecessors have been pouring money into Latin America for years and, while there is some way to go, he says he is starting to see a return. "The kind of commitment that we have is unparalleled in Latin America, we have invested US$130 billion in the last 25 years. No other nationality
(has) invested more than us in Latin America. If we had just remained in Spain there is no way we could have become what we are today."
 
Last year, Lopez bet on Brazil. The group bought Vivo - Brazil's largest wireless carrier and net profit has trebled. Brazil is the largest economy in Latin America and is still growing fast, so you might think the Chief Executive is rather pleased with his purchase. Well he is, but he's also cautious because not all of his region is performing like Brazil. Pockets like Mexico are showing signs of fatigue, in mobile traffic and revenue. And also he's always thinking about his competition. "France Telecom stepped out of Latin America in 2003/2004 at the time of the crisis. Verizon stepped out, HNT stepped out, so there were a lot of people who were present in the region but in the bad times they abandoned (it). They were replaced by a very strong competitor, which is America Movil, and then we have another strong competitor which is aiming to become regional in Brazil - 'Oi', a Brazilian company." 
 
Lopez's main competition, though, is one man - Carlos Slim - who just happens to be the richest man in the World. The Mexican telecommunications tycoon has a powerful hand in all 19 countries in the region through his telecoms company - America Movil. His empire is vast and while government competition concerns are currently reining in his broadcast ambitions in Mexico and Argentina, he has no intention of slowing the pace elsewhere. He is opening up larges swathes of the region, flooding consumers with endless offers in pay TV services combined with phone and internet.
 
The two men and their companies are long-standing rivals. Slim lost out to Telefonica in the race to buy Telecom Italia back in 2007. Lopez knows his Mexican rival is not about to be beaten again. Both know that while their region is still perceived as underdeveloped in traditional terms, they have no doubt it will explode in the next 10 to 20 years. Lopez suggests Latin Americans are "stepping out of the crisis much stronger than before because they never had exposure to the toxic assets in the financial services and they did their homework. Our sector, it's the fastest growing region on earth". That growth is Maria Alba's friends in Venezuela, who are already well established on the new middle class ladder, and the millions more who will join them; having more money, more purchasing power and more choice in mobiles, pay television packages and the ever expanding gamut of technology gadgets.
 
But as Lopez talks, he reveals a hint of nerves. "It's very dynamic, very tense, You have three waves of growth happening simultaneously in Latin America and that forces us to be very dynamic and very competitive because competition is very high."
 
A Spaniard himself, the Latin American boss is acutely aware of how his home country, once a colonial might, is now buckling under a crippling recession and looking for all the help it can get from its former servant. The tables are turning, with an ever increasing number of indigenous companies expanding and looking to take on Telefonica and the rest of the international giants. It's little comfort but Spain is not the only former colonial power to find itself in this mess. Portugal is stuck in the quicksand too. There is also Britain looking to strengthen its trade links with its former colonies, India and Pakistan. 
For Latin Americans the future seems so much brighter and that eternal promise that talks of may well materialise. What is certain is he is being watched closely from all corners of the company as everyone knows that Spain can only stay on the line for so long.
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