• Telefonica’s mobile services under the Movistar brand faced tough competition, even as its success in the region came from Vivo in Brazil.
• Caught up in stiff competition, Telefonica’s financials failed to meet its shareholders’ expectations, which ultimately led to the company starting a gradual exit from the markets in the region.
• Telefonica has already sold two Movistar markets with only regulatory approval pending.

During the 1990s, Telefonica, a Spain-based multinational telecommunications company, decided to expand its business into Latin America to diversify its growth and profits. The region during this period was witnessing a series of privatizations, just the right time for companies like Telefonica to quickly gain a foothold. Telefonica’s first acquisitions in the region were in Chile and Argentina. Later, in 1994, Peru became its third market through an acquisition. In 2004, Telefonica acquired Bellsouth to gain market access to countries like Venezuela, Colombia, Ecuador and Uruguay. Movistar became the brand under which Telefonica consolidated all these acquisitions.

In Brazil, the region’s biggest market, Telefonica followed a similar script. It acquired the state-owned telecommunications company Telesp in 1998. However, Telefonica achieved significant success in this market after 2003 when Telesp merged with Vivo, a joint venture of Portugal Telecom and Telefonica. In 2010, Telefonica acquired Portugal Telecom’s stake in Vivo. Vivo currently leads the market.

Telefonica’s business strategy for Latin America was simple – to replicate its success in Spain overseas, with a focus on mobile services, fixed-line services and pay TV. However, Millicom through its brand Tigo and America Movil through Claro presented huge challenges. Caught up in this stiff competition, Telefonica’s financials failed to meet its shareholders’ expectations, which ultimately led to the company starting a gradual exit from the markets in the region.

Telefonica EBITDA

Source: Company filings

The main problem that Telefonica ran into over the course of decades spent in the region was its shrinking margins. Margins reflect a business operation’s profitability and are among the most important ratios observed by investors. Also, the telecommunications industry is highly capital intensive, requiring ongoing investments just to maintain service.

Telefonica EBITDA Margin in Key Markets

Source: Company filings

Telefonica remains a competitive telecommunications firm around the world, but its shareholders have decided to sell almost all of its business units located in Latin America. Currently, there are two M&A transactions taking place in Argentina and Colombia. Both are awaiting respective national regulators’ approvals because these transactions are quite impactful for each market. The sale of Mexican and Peruvian units is yet to see any forward movement. In Brazil, no decision has been taken on Vivo’s sale.

In Argentina, Telecom Argentina offered $1.245 billion for Telefonica’s Argentinian unit. Despite being signed and closed, the transaction has not moved forward. The regulator has not approved the acquisition yet and even the executive branch, headed by President Javier Milei, has expressed its concerns over the formation of a monopoly in the country. If the purchase is approved, Telecom Argentina would lead the market with approximately 60% share in mobile lines and 50% of broadband access, according to the December 2024 market data.

In Colombia, Millicom offered $400 million to buy a 67% stake in the Telefonica unit. In this market, both mobile operators started sharing their networks in 2023 and launched a joint bid for the 5G spectrum. For the same concerns over the creation of a monopoly, the Colombian regulator is yet to approve this transaction. If approved, Tigo would end up with approximately 41% of mobile lines and 34% of broadband access, according to the December 2024 market data.

With Telefonica’s exit, America Movil will become the only operator with a presence in almost every country in the continent.