MADRID-José María Álvarez-Pallete succeed as CEO César Alierta of Telefonica SA and, together with the charge, shall inherit the challenge of leading the Spanish telecommunications giant in a context of high indebtedness, increasingly complex regulations and a plot of traditional competitors and non-traditional.
the nomination of Alvarez-Pallette, announced Tuesday by the company it was not a surprise to analysts and investors, who say Alierta had been preparing him for the top job and that the executive has already played an important role in outlining the approach of the company to grow in markets where it already has a large presence -Spain , Germany and Brazil and withdraw from countries where they did not have enough scale or product offerings, such as Ireland and the Czech Republic.
the great unfinished business of Alierta and Telefonica, according to an executive of the company Latin America is Mexico, a market with great growth potential, attractive margins and a more favorable than Brazil’s tax structure, but where until just over a year ago regulators seemed more focused on maintaining the status quo that followed the privatization of Telmex. Telefónica has tried to walk in Mexico since 1990, without much luck. The opening recently launched President Enrique Peña Nieto is the group “with the tired horse,” the executive with knowledge about attempts to Telefonica in that country.
Alvarez-Pallette have to deal with high debt that limits the financial flexibility of the company to expand through new acquisitions.
in his nearly 16 years at the conglomerate, Alierta oversaw a period of expansion was followed by a recent retreat as the company It strives to reduce its debt.
While his predecessor, Juan Villalonga, launched the internationalization of Telefóncia by placing shares, Alierta, who took over as CEO in 2000, continued by absorbing debt buy, for example, the wireless operations of BellSouth Corp. in Latin America in 2004 and the British mobile operator O2 PLC in 2005.?
the acquisitions were carried out amid widespread optimism on the boards Spanish, encouraged by a housing boom that propelled the growth of the national economy and in an international context of high credit supply. The towers and underground telephone networks of Telefónica now spread over a large part of Latin America and major European markets.
However, the Spanish housing boom began to end in 2008 and the country went into recession. Alierta and other Telefonica executives “were living in denial when macroeconomics turned against them,” says Georgios Ierodiaconou, telecoms analyst at Citi. “They kept increasing the dividend each year to levels that were very difficult to sustain.” To meet the promised payments, he adds, the company had to reduce investment in their businesses around the world and lost customers in Latin America and other markets.
Alierta changed his approach, now with Alvarez-Pallete as its second. “In recent years, the company has tried to mante-ner debt under control by reducing its presence and the sale of assets in those countries where growth opportunities were scarce, to focus on four or five countries that offer opportunities expansion “as Spain, Germany and Brazil, Javier Borrachero, telecoms analyst at Kepler Cheuvreux says. The company, however, remains “highly buttressed” by debt, he adds.
In 2013, Telefonica bought the German mobile operator E-Plus to redouble its commitment in the country and in 2015 agreed to sell its subsidiary CK Hutchison British O2 Holdings Ltd.
a successful sale is an important step in Alierta’s strategy to focus on profitable markets and leave those who do not generate substantial profits. “Now, Telefonica is doing the right thing,” says Ierodiaconou. But the analyst believes that the legacy (of Alierta) only “be determined in the next two or three years.”
The board of Telefonica will vote on the appointment of Alvarez-Pallete, proposed by Alierta, in a meeting scheduled for April 8, the company said. Telefonica did not give details on when the output Alierta, who will remain on the board will occur and will continue to lead the foundation of the group.
Alvarez-Pallete, 52, joined Telefonica in 1999 and has been its CEO since 2012. Investors and analysts say that in the last two years Alierta seemed to give more choices to his lieutenant.
Alvarez-Pallete “is considered as someone who has a couple of very safe hands Telefónica and is widely respected by financial markets, “says Paul Marsch, an analyst at Berenberg Bank.
Telefónica shares closed up 1.5% on the Madrid stock Exchange after the announcement, compared with an increase of 0.2% of the Spanish IBEX 35 index.
in Latin America, according to a person familiar with Telefonica ahead an increasingly complex regulatory environment as the authorities in some countries learn from others and tend to follow the lead of the European Union’s competition.
As in Europe, Telefonica needs to overcome in the region pressure from various governments to facilitate the entry of new companies operating on network infrastructure owned by Telefonica and other traditional companies. Alierta has led in recent years the battle of Telefonica in the two regions to reverse rules that, from his point of view, allow non-traditional operators provide services on established networks and Internet companies like Facebook and Google offer free services then benefit from an advertising based business information users
Although it has prepared Alvarez-Pallette for a long time, the announcement may have been surprising on one point. as before, Alierta appeared to have started the same process with other names, then leave them out of the race. Not only it has not been the case of Alvarez-Pallette, but this has been the driving force behind some changes that apparently are Permi-I tend to straighten the course of Telefónica. “Just to have survived the ‘curse’ of other apparent successor is already a merit,” said an executive with knowledge of the process.
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