Established in the 1920s, Spain’s Telefonica was a typical state-owned national telecommunications monopoly until the 1990s. Then the Spanish government privatized the company and deregulated the Spanish telecommunications market. What followed was a sharp reduction in the workforce, rapid adoption of new technology, and focus on driving up profits and shareholder value.

In this new era, Telefonica was looking for growth. Its search first took it to Latin America. There, too, a wave of deregulation and privatization was sweeping across the region. For Telefonica, Latin America seemed to be the perfect fit. Much of the region shared a common language and had deep cultural and historical ties to Spain. After decades of slow growth, Latin American markets were now growing rapidly, increasing the adoption rate and usage not just of traditional fixed-line telecommunications services, but also of mobile phones and Internet connections.

Having already transformed itself from a state-owned enterprise into an efficient and effective competitor, Telefonica now believed it could do the same for companies it acquired in Latin America, many of which were once part of stateowned telecommunications monopolies. In the late 1990s, Telefonica invested some $11 billion in Latin America, acquiring companies throughout the region. Its largest investments were reserved for Brazil, the biggest market in the region, where it spent some $6 billion to purchase several companies, including the largest fixed-line operator in San Paulo, the leading mobile phone operator in Rio de Janeiro, and the principal carrier in the state of Rio Grande do Sul. In Argentina, it acquired 51 percent of the southern region’s monopoly provider, a franchise that included the lucrative financial district of Buenos Aires. In Chile, it became the leading shareholder in the former state-owned monopoly, and so on. Indeed, by the early 2000s Telefonica was the No. 1 or 2 player in almost every Latin American country, had a continent-wide market share of around 40 percent, and was generating 18 percent of its revenues from the region.

Still, for all of its investment, Telefonica has not had it all its own way in Latin America. Other companies could also see the growth opportunities, and several foreign telecommunications enterprises entered Latin America’s newly opened markets. In the fast-growing mobile segment, America Movil, controlled by the Mexican billionaire Carlos Slim, emerged as a strong challenger. By 2008, the Mexican company had 182 million wireless subscribers across Latin America, compared to Telefonica’s 123 million, and intense price competition between the two companies was emerging.

Questions

1. What changes in the political and economic environment allowed Telefonica to start expanding globally?

2. Why did Telefonica initially focus on Latin America? Why was it slower to expand in Europe, even though Spain is a member of the European Union?

3. Telefonica has used acquisitions, rather than greenfield ventures, as its entry strategy. Why do you think this has been the case? What are the potential risks associated with this entry strategy?

4. What is the value that Telefonica brings to the companies it acquires?

5. In your judgment, does inward investment by Telefonica benefit a host nation? Explain your reasoning?