Business Transformation at Telefónica De España
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Case Code: BSTR256 Case Length: 20 Pages Period: 1998-2006 Pub Date: 2007 Teaching Note: Not Available |
Price: Rs.400 Organization: Telefónica de España Industry: Telecom and Broadband Countries: Spain Themes: Business Transformation, Corporate Growth Strategies |
Abstract Case Intro 1 Case Intro 2 Excerpts
"For us, the transformation means: transforming the network, transforming the services and transforming the business. We are in a transition point, complex and exciting at the same time."
- Juan Carlos Valverderey, Responsible for Technology Strategy on Network and Service Architecture in Telefónica de España, in 2006.
"We find ourselves in an increasingly complex and competitive market, in which we are making great efforts to promote broadband services. We achieved significant advances in developing the Information Society in Spain. At the same time, we also made significant progress in the internal reorganization of our company, developing it towards becoming a more commercially oriented and customer driven company."
- Julio Linares, Executive Chairman, Telefónica de España, in 2005.
Introduction
For the nine months ending September 30, 2006, the Spain-based diversified telecommunications group, Telefónica SA (Telefónica) generated total revenues of €38,7043 million and a net profit of €5,185.7 million. The net profit witnessed an increase of 59.4% over that of the previous year. Telefónica was one of the leading telecommunication companies in the world with a major presence in Europe, Africa, and Latin America. As of June 2006, it had 191.7 million customers. Telefónica de España S.A. (Telefónica de España), a subsidiary of Telefónica, was a leader among the telecommunication operators in Spain, involved in providing fixed telephony and broadband services (Refer to Exhibit I for details of subsidiaries of Telefónica).
During the first three quarters of 2006, Telefónica de España generated revenues of €8,893.9 million, with a growth of 1.7% over the same period in the year 2005. The revenues from Telefonica's traditional access business stood at €2,078.7 million, traditional voice services at €3,665.6 million, Internet broadband services at €1,762.6 million, data services at €806 million, and IT services at €255.8 million (Refer to Exhibit II for Revenue, Operating Income, and OIBDA of Telefónica de España for the first nine months of 2006 and 2005). Telefonica de España's improved financial performance was the result of a business transformation program implemented in the year 2000. The program enabled the company to reverse its declining earnings trend, and become one of the leading broadband operators in Europe and an integrated communication solutions provider.
The late 1990s saw Telefonica de España going through a bad financial phase. In 1999-2000, the company's revenues grew by 2.1% but the EBITDA declined by 10.7% to €4,491 million and the operating expenses increased by 11.6% to €5,878 million. The company faced several problems due to difficult market conditions. The liberalization of the Spanish telecom industry saw the entry of several private players, leading to severe competition for the company. With growing competition, the call prices fell from c.€ 7.45 per minute in 1999 to c.€ 5.74 per minute in 2000.
At the same time, the new players entering the market were providing bundled voice and Internet services. The company was slow to react to the changes mainly due to access deficit and delays in developing and approving the new products. The transformation program, however, helped Telefónica de España to develop customer focus and new, better quality products. Its market share in fixed telephone, broadband, and Internet connections also showed a marked improvement. According to Julio Linares (Linares), Executive Chairman, Telefónica de España, "I believe we have changed a lot. Nowadays, the organization is more oriented to results. Also, we all have understood the need to balance the focus on short-term results with efforts to gradually change our capabilities and attitudes. Finally, I would highlight the fact that the organization has advanced significantly in its customer orientation and has also become really conscious of efficiency - critical requirements for our current and future success."...
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