Until the 1990s the government-controlled public company known since May 1988 as Telefónica de España, S.A. (Telefónica), was the dominant player in the Spanish telecommunications industry. Like many of its international counterparts, however, Telefónica was fully privatized in 1997 and became known as Telefónica S.A. the following year when basic telephony in Spain was deregulated. By 2001, Telefónica S.A. operated as the leading telecommunications concern in the Spanish and Portuguese-speaking regions of the globe. Acting as a parent company for ten major subsidiary companies, including the likes of Telefónica de España, Telefónica Latinoamericana, Telefónica Móviles S.A., Terra Lycos S.A., Telefónica DataCorp S.A., Atento, and Admira, the company had business interests in fixed telephony, mobile telephony, Internet content and services, audiovisual media content, and various other telecommunications and e-commerce-related services. During the 1990s, the landscape of the telecommunications industry began to change dramatically. As such, the business operations of Telefónica were deeply affected. Beginning in 1994, the company began to reorganize itself in preparation for privatization as well as deregulation of basic telephony. By 1998, basic telephony in Spain was deregulated. Telefónica S.A. was then created to act as a parent company for the firm's business lines. As a result of facing new competition in its home market, the company continued to focus its efforts on its international expansion. The company entered the Brazilian market when that country's telephone company, Telebras, was privatized. During 1998, the firm secured $18.2 billion in revenues with nearly 26 percent stemming from operations outside of Spain. By this time, over 50 percent of its 37 million fixed lines were outside of its home country, 54 percent of its 14.4 million cellular phone customers did not reside in Spain, and 86 percent of its 2.3 million pay-television subscribers were international. Telefónica had also invested nearly $10.9 billion in the Latin American region by the late 1990s and controlled nearly 40 percent of its telecommunications.
Challenges & Problems:
Telefonica’s first challenge came in the 1920’s when the Spanish government privatized the company and deregulated the Spanish telecommunications market. This was followed by a sharp reduction in the workforce, rapid adoption of new technology and focus on driving up profits and shareholder value. This was a turning point for the previously inefficient, government run corporation. The newly energized, company in search of growth prospects to increase shareholder value began to look towards Latin America. With similar policies of deregulation and privatization, Latin American seemed to be the next logical step for Telefonica. Since February 1997, when the government sold its remaining 21% stake, Telefonica has undergone the most radical shakeup of any former state telecommunications company in Europe. Its chairman and CEO, Juan Villalonga, a 46-year-old boardroom bruiser recruited from Bankers Trust, has slashed the payroll, revamped the corporate structure, and forced Telefonica's famously conservative middle managers to heed the American gospel of shareholder value. Now Villalonga aims to catapult Telefonica (currently 193 in the Fortune Global 500) onto the world stage as one of the planet's top five telecom companies. But the battle is far from over: Already 319 million Latin Americans, or 56% of the population, have mobile phones, and Pyramid Research Latin America analyst Omar Salvador estimates penetration will reach 79%, or 476 million customers, in five years. Competition for all those new clients will be intense. In 1999, in the six months to June, Telefonica International registered operating profits of just $57.2 million, barely higher than those of the same period last year. At the same time, Telefonica's operating expenses in Latin America...
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