(Bloomberg) -- Telefonica SA is striking fresh deals as part of a broader push to restructure its core markets and win over investors.
The Spanish telecommunications company announced two deals on Wednesday, saying it has opened talks to sell its Colombian unit, Coltel, to Latin American carrier Millicom International Cellular SA for $400 million in cash. A successful deal would see Telefonica quit the country, one of its most leveraged Latin American subsidiaries, after 18 years.
It also announced the creation of a joint fiber-optic broadband operator in its home market with smaller rival Vodafone Spain, allowing the companies to share network costs. Telefonica will keep the majority of the venture and the two carriers will bring in a third-party backer.
Investors have for years been weary of European telecom stocks and the industry’s low growth prospects — a problem exacerbated for Telefonica by its exposure to currency swings in Latin America. Jose Maria Alvarez-Pallete, the carrier’s executive chairman, is attempting to show investors that he can offer reliable profits to pay dividends while also cutting debt.
The deals see Telefonica trying to alleviate two pressure points. The carrier has been looking to reduce its presence in Latin America since 2019, rolling back an earlier strategy of trying to drive growth in the region, but progress has been slow. It also wants to consolidate the markets it operates in. Spain is the carrier’s biggest market, but also one of Europe’s most competitive with a larger number of fiber network operators compared to other countries. Telefonica has repeatedly said it could benefit from consolidation.
The Vodafone Spain tie-up could give Telefonica a cash boost that would help cut its debt, said Joaquin Guerrero, director at telecom consulting company Nae. This is part of a longer-term play to monetize its infrastructure, he said, pointing to a similar wholesale deal in Spain with upstart operator Digi Communications NV.
“It offers them its infrastructure in the long term, and in doing so, it can capture their future growth,” Guerrero told Bloomberg News. “That is something distinctive about Telefonica’s strategy right now.”
Such tie-ups may help Telefonica weather a changing wholesale market. Its wholesale business shrank by 3.1% in the first half of 2024, and the carrier expects low- to mid-single digit declines over the next few years.
Alongside the deals, Telefonica reported earnings on Wednesday that were broadly in line with analyst expectations.
Adjusted earnings before interest, tax, depreciation and amortization grew 1.8% to €3.2 billion ($3.5 billion) in the second quarter, the company said. That meets the average forecast by analysts in a Bloomberg survey. Telefonica also reiterated its outlook for profit and free cash flow growth this year.
Free cash flow, a key metric in Telefonica’s new strategy, was €205 million and was hit by seasonality and a €274 million tax payment in Peru.
Telefonica has seen its shares rise more than 19% this year supported by aggressive new investors. Saudi Telecom Co.’s plan to acquire a stake of as much as 9.9% in Telefonica spurred the Spanish government to take a 10% position earlier this year. Spanish investment firm CriteriaCaixa SA reached a 9.9% stake in late June.
(Updates with further context throughout. An earlier version of this story corrected a reference to companies involved in a deal.)
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