Telefónica steers steady course during first quarter under GPS strategy

Telefónica reports strong increase in Q1 net income, announces non-binding MoU with Digi Spain, and stays hopeful that German frequency rights that are due to expire in 2025 will be extended.

Anne Morris, Contributing Editor, Light Reading

May 9, 2024

3 Min Read
Telefonica logo on a building.
(Source: Kristoffer Tripplaar/Alamy Stock Photo)

Telefónica used its first-quarter (Q1) earnings presentation to update on the progress it is making under its recently unveiled "GPS" (Growth, Profitability and Sustainability) plan, and also provided some details on a number of projects it is juggling in its four key markets of Brazil, Germany, Spain and the United Kingdom.

First, the group painted a broadly positive picture of life under GPS thus far, reporting a pretty healthy 78.9% increase in net income to €532 million (US$570 million) in Q1 2024. Revenue growth was only 0.9% to reach €10.14 billion ($10.8 billion), although Telefónica pointed out that service revenues rose by a somewhat higher rate of 2.3%. EBITDA increased 1.9% to €3.2 billion ($3.43 billion).

Overall, group chief operating officer Ángel Vilá commented that Telefónica had made a "solid start to the year with accelerating revenue and EBITDA growth momentum … we remain confident in achieving our financial outlook for the full year 2024."

Wholesale changes

Meanwhile, this year could bring some movement on key strategic changes at market level, including the proposal to create a new NetCo in the UK, spectrum license renewals in Germany, and national mobile roaming arrangements in Spain following the formation of the MasOrange joint venture. 

Liberty Global, Telefónica's joint venture partner in Virgin Media O2 (VMO2), said last week that more will be revealed about the NetCo over time, but did note that Deloitte and Boston Consulting Group had been appointed as advisers on the carve-out and said there had been strong interest from infrastructure investors.

When VMO2 first announced the NetCo plan, it made it clear that the new entity would underpin two key ambitions: to act as a wholesale challenger to incumbent BT Openreach; and to provide a platform for the potential consolidation of the highly fragmented fiber-to-the-premises (FTTP) market in the UK.

During Telefónica's earnings call on Thursday, Lutz Schüler, CEO of VMO2, confirmed that the JV is in negotiations with three possible wholesale partners, Sky, Vodafone UK, and TalkTalk. Discussions are at an advanced stage "with one party," he said, although it is too early to disclose any details.

Moving on to Spain, Telefónica had some good news to impart, announcing that it has signed a non-binding MoU with Digi Spain for a long-term mobile network agreement. Although the operator was unable to provide details as yet because of confidentiality clauses, it said terms and conditions are agreed in principle and the partners expect to conclude this agreement "in the next few weeks."

Digi Spain already operates as an MVNO on Telefónica's network. However, under remedies imposed to allow Orange and Másmóvil to merge their respective Spanish operations and create MasOrange, Digi has agreed to buy spectrum from Másmóvil for €120 million ($129.2 million). In addition, it has the option to take up a national roaming agreement with MasOrange. However, indications are that Digi is now leaning towards forming an expanded deal with its existing wholesale partner.

Spectrum rights 

In Germany, a key preoccupation of mobile network operators is what will happen to their spectrum rights in the 800MHz, 1,800MHz, and 2.6GHz bands once they expire in 2025. Telefónica Deutschland as well as rivals Deutsche Telekom and Vodafone Germany have long been calling for these rights to be extended rather than re-allocated via auction. New entrant 1&1 of course has an opposite view to the incumbent MNOs.

Germany's Bundesnetzagentur (Federal Networks Agency) has already indicated that it may consider scrapping a plan to auction these rights. Although nothing has been decided as yet, Telefónica expressed confidence that the rights will be extended.

In Brazil, meanwhile, Telefónica's Vivo unit faces the expiry of its current concession to sell fixed telephony services at the end of 2025 and is in negotiations with the regulator on the potential migration to an "authorization" (or private) regime.

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About the Author(s)

Anne Morris

Contributing Editor, Light Reading

Anne Morris is a freelance journalist, editor and translator. She has been working in the telecommunications sector since 1996, when she joined the London-based team of Communications Week International as copy editor. Over the years she held the editor position at Total Telecom Online and Total Tele-com Magazine, eventually leaving to go freelance in 2010. Now living in France, she writes for a number of titles and also provides research work for analyst companies.

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