Telefónica Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Telefónica is a global telecommunications company founded and headquartered in Spain. Established initially as a fixed-line telephone company, Telefónica currently operates in the telecommunications, information, and entertainment businesses in 23 countries and has over 228 million customers. The company is listed in the Bolsa de Madrid (TEF), NYSE Euronext (TFA), London Stock Exchange (TDE), Frankfurt Stock Exchange (TNE5), and the Tokyo Stock Exchange (9481).

Telefónica was incorporated in 1924 as Compañía Telefónica Nacional de España (CTNE), a private firm owned by Spanish and international investors. From its inception, the company was granted a monopoly of the telephone service in Spain. In 1945, the government of General Francisco Franco gained control of almost 80 percent of CTNE as part of a larger process of the nationalization of utility companies. Starting in the mid-1980s, successive governments privatized the company through a series of public offerings, and the company changed its name to Telefónica de España, SA. In 1996, the Spanish government deregulated the telecommunications market, and in 1997, the country sold its last stake in Telefónica. However, despite the privatization process, the Spanish government helped Telefónica maintain control of the Spanish telecommunications market until 2005.

International Growth

The resources amassed during more than 60 years of monopoly fueled Telefónica’s international growth from the beginning of the privatization process. Telefónica started expanding its territory through acquisitions of telecommunications companies, initially in Latin America. In 2005, the company began its European expansion through the acquisition of Cesky Telecom in the Czech Republic and O2, a mobile operator in Germany and the United Kingdom. Telefónica also entered the Chinese market through the purchase of a 5 percent stake of China Netcom, which has grown to over 7 percent as of 2008.

The postprivatization growth not only extended Telefónica’s geographical reach, but it also pushed the company into new industries. Telefónica owns television and radio stations, production companies, directory publishing services, Internet portals, and satellite and broadband transmission companies. As a result of these acquisitions and its increasing participation in other industries, Telefónica’s customers, sales, assets, number of employees, and market capitalization doubled between 2004 and 2006.

Currently, operations are organized into three geographical regions: Telefónica España, Telefónica Latinoamérica, and Telefónica O2 Europa, which serve the Spanish, Latin American and China, and European markets, respectively. The company also owns three firms that support the telecommunication business and leverage Telefónica’s global network: Atento provides customer service and call center outsourcing in Spanish-speaking Latin America, Brazil, and Morocco; TGestiona offers consulting and outsourcing of business-support areas; and Telefónica I+D is in charge of Telefónica’s research and development (R&D) activities. Telefónica also holds controlling interest in mobile companies 3Q Mobile AG (Switzerland) and Group 3G (Germany). In the United States, Telefónica USA, Inc., serves U.S.-based multinational companies with businesses in Latin America. Together, international operations accounted for more than 63 percent of Telefónica’s income in 2007.

Telefónica’s incumbent position after many years of monopoly of the telecommunications and data transmission markets in Spain has been both a source of competitive advantage and a target for criticism and judiciary action. Thanks to the monopoly, Telefónica accumulated the resources to grow through international acquisitions. It also allowed the firm to extend its network through areas of Spain where other operators find the costs of installation prohibitive. Customers and competitors have complained that Telefónica has abused its dominant position and engaged in unfair competition at the Spanish and European Union (EU) level.

Since 2000, the company has been fined over €80 million by the Spanish Tribunal de Defensa de la Competencia (Competition Defense Tribunal) for several violations of antitrust provisions. Additionally, the European Commission (EC) considered that Telefónica’s practices affected the EU as a whole and constituted a “serious abuse of its dominant position,” because of the duration and severity of the uncompetitive practices. The EC imposed a fine of €151,875 million, the largest fine in the EC’s history.

Telefónica maintains a high level of investment in R&D through its I+D division, and also a network of strategic alliances with leading telecommunications companies. This has allowed the company to create specific components and services for the markets it enters. Although Telefónica’s incumbent advantages cannot be denied, it is important to recognize that the company’s success also comes from its technological prowess and productivity.

Bibliography:

Bel and F. Trillas, “Privatization, Corporate Control and Regulatory Reform: The Case of Telefónica,” Telecommunications Policy (2005);
Garcia Benau, Maria Antonia, and Lee H. Radebaugh, The Impact of a New York Exchange Listing on the Capital Structure and Financial Reporting of Telefónica De España (University of Utah, 1998);López, “The Role of Telefónica: The Internationalization of Telecommunications in Spain, 1970–2000,” Business and Economic History (2003).

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