Change is on the Telefónica horizon with towers and workforce restructure

Telefónica has announced plans to accelerate the strategy of monetizing its tower assets after getting the green light from the Board of Directors.

The woes of Telefónica have been quite apparent in recent years. Despite owning regionalised businesses which are either market leaders or at the top-end of the scale, the firm has been drowning in debt. In bygone years, it was rumoured the firm was struggling with €53 billion debts, though it does seem to have gotten a handle on things.

At the end of 2018, thanks to several cost saving initiatives, debt had been reduced to €41.785 billion. During this period the firm did toy with a number of divestments (O2 UK) and an IPO of the tower infrastructure business, Telxius. This IPO fell through, but the business unit does present a new opportunity.

Following the Board Meeting, the team is pushing forward with plans to generate more profits through monetizing both passive and active telecoms equipment. And it does appear there are profits to be made.

Telefónica currently claims to own roughly 68,000 sites globally, either directly or through subsidiaries. Of those 68,000, tower infrastructure business Telxius owns approximately 18,000, with the remaining 50,000 owned by other units within the group. 60% of these assets are located within the four major markets (Spain, UK, Germany and Brazil).

By comparing the value of these assets with market benchmarks, Telefónica believes it can generate €830 million in revenues and €360 million in OIBDA. Another attractive component is the belief these sites would only require €25 million in maintenance capital expenditure across the year.

While this strategy might be considered as a means to aid rivals, the numbers are attractive to a business which is facing financial and competitive strain. Aside from the debt which is still looming above the heads of executives, subscriptions data is not the most attractive either as you can see from the table below:

What is worth noting is that ‘total access’ accounts for everything which is running across one of the Telefónica networks in that region. That could mean mobile, wholesale, MVNOs, TV or broadband. That said, the numbers tell a story for themselves; Telefónica isn’t really going up or down, just hovering around.

If the traditional means of making money, attracting more subscribers, isn’t necessarily paying off the debtors, Telefónica needs to think about new strategies. Monetizing the tower infrastructure assets is certainly one way to go, and restructuring the workforce is another idea which might save money across the year.

Alongside the tower monetization announcement, Telefónica Spain has also said it is currently in negotiations with trade unions concerning its workforce. In short, that means some will be retrained, some will be encouraged into retirement and others will be shown the way to the door.

“The collective agreement we signed four years ago has enabled us to make great advances and has provided us with social and labour stability during this period,” said Emilio Gayo, Chairman of Telefónica Spain.

“Now we have to be more ambitious and evolve into a more digital company that is ready for the challenges ahead.”

Although Telefónica Spain is not putting any numbers out into the public domain, reports have emerged that the workforce will be trimmed by roughly 5,000. Those over the age of 53 will be offered a ‘voluntary individual suspension plan’, while the plan is to double the training budget to reskill staff members.

With an eye on the horizon, Telefónica is seemingly preparing to future-proof its largest expense; employees. The management team anticipates more than half of sales will be through digital channels in a few years’ time, while legacy fixed and mobile networks will be shut down during the ‘modernisation’ period. This will make a number of people redundant.

In fairness to Telefónica , it is creating plans to help evolve the skill sets of employees, but with any business evolution there will always be the messy job of headcount reduction.