November 27, 2019 / 6:12 PM / in 4 months

'We need to reinvent': Spain's Telefonica eyes $2.2 billion sales boost

MADRID (Reuters) - Spain’s Telefonica (TEF.MC) said it would split out part of its Latin America business and create new units for digital technology and infrastructure under a plan aimed at generating more than 2 billion euros ($2.20 billion) a year in extra revenues by 2022.

FILE PHOTO: A general view shows the Telefonica headquarters in Madrid, Spain, June 12, 2018. REUTERS/Juan Medina/File Photo

Along with its peers, Europe’s fourth-largest telecoms company is struggling to achieve solid profit growth. Its shares, which touched their lowest level in more than two decades amid increasingly tough market conditions, had lost 9% of their value this year before the announcement.

“The model is tired out so we need to reinvent ourselves,” Chief Executive Jose Maria Alvarez-Pallete told a news conference on Wednesday called unexpectedly after a board meeting to approve the plan.

The new measures include an “operational spin-off” of Telefonica’s business in Spanish-speaking Latin America, leaving the company to focus on key markets in Spain, the United Kingdom, Brazil and Germany. Alvarez-Pallete said the company would conduct a strategic review and was open to mergers and acquisitions.

The company hopes the revenue boost will come from a new unit, Telefonica Tech, formed initially by grouping together cybersecurity, the Internet of Things and cloud computing.

The Internet of Things refers to the smart devices that are expected to fill digital workplaces and homes.

“Everything will be connected and emitting information in real time, so there will be an explosion of data,” Alvarez-Pallete said.

The different areas of the new unit are already attracting interest from “all kinds of partners, from industrials to technological partners, technology funds, to invest in these lines,” Alvarez-Pallete said. But “we will only do it if we believe it has value.”

Telefonica will also create a unit to hold its portfolio of communications towers and other infrastructure assets, providing services to other operators and incorporating partners.

Recent deals have seen buyers pay much more for communications infrastructure assets than they are willing to fork out for operators’ shares, and Alvarez-Pallete said financial institutions were interested in investing alongside Telefonica.

Communications towers in particular have long been popular among institutional investors because of their steady cash flows, and operators are increasingly looking to squeeze cash out of them as they face the high costs of rolling out new technology.

Reporting by Isla Binnie; Additional reporting by Andres Gonzalez; editing by James Mackenzie and Leslie Adler

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