Financials Forecasts

Telefonica and Telecom Italia gain new CEOs

Two major European operators announced new CEOs this week, though Telecom Italia and Telefonica are playing it safe in their choices.

The Italian company’s CEO Marco Patuano resigned last week and has been succeeded by Flavio Cattaneo, currently head of Italian railway company NTV and already a TI board member. Although the latter role will have given him insights into the telecoms business, this is his first senior management role in the sector, indicating that the company has prioritized overall executive experience and the ability to bring a fresh take on the challenging decisions facing TI – from quad play and consolidation challenges in its home market, to turbulence in its Latin American territories.

However, it raises concerns that, as a man whose senior roles have almost entirely been in bricks and mortar businesses, Cattaneo will lack the understanding of the digital business to effect digital transformation at TI and work out compelling strategies to compete with Google and others.

Patuano was reported to have resigned under pressure from French media giant Vivendi, now TI’s largest shareholder, after clashes with its chairman Vincent Bollore over the pace of ongoing restructuring. Vivendi acquired almost 15% in the Italian operator last June after a share swap with Telefonica, part of the latter’s acquisition of the French firm’s Brazilian unit GVT. Vivendi then upped its stake to almost 20% (the current legal limit) in October, as it looks for new markets and channels for its media offerings.

Vivendi’s strategy seems to be to turn TI into a far more media-focused group, which could then be a valuable complement to the existing French activities, laying the foundations for a southern European regional giant. That would probably involve offloading TIM Brasil, mirroring Vivendi’s own exit from that market, which despite its size and growth potential, may be a drain on the funds and focus needed for the European strategy.

The TI management has been reluctant to sell TIM Brasil, however, and there are no signs as yet that Cattaneo will be more amenable to the idea than his predecessor. TI pointedly said in its statement that the new CEO would be responsible for developing the telco’s strategic, industrial and financial plans and ensuring “the management and development of business in Italy and South America”.

Catteneo’s most immediate challenges will be to implement the cutbacks which Vivendi is demanding while calming opposition to job losses from Italian trades unions. Last month, TI was reported to be targeting 3,300 voluntary redundancies in Italy, and a further 250 job cuts, but this would still only represent 8% of the total Italian workforce.

The operator’s revenues fell, on a constant currency basis, by 4.6% last year to €19.7bn ($22.3bn), and EBITDA was down by 17.9%, to around €7bn. It also faces intensified competition – on the fixed-line side, Italian utility Enel is to develop a largely wholesale fiber-to-the-home network, and has already signed up Vodafone and Wind, while two smaller MNOs, Wind and 3 Italia, want to merge, though this has been referred to the European Commission for antitrust review.

Meanwhile, Telefonica announced that its long-serving CEO and executive chairman César Alierta is to be replaced by COO José María Álvarez-Pallete after almost 16 years.

Álvarez-Pallete has been considered the natural successor since Alierta appointed him as COO in 2012, and he has been at Telefonica for 17 years, initially joining as CFO for Telefonica Internacional.

“With his credentials and experience managing the day-to-day of all operations from his position as COO of the company, Alierta considers Álvarez-Pallete as the best prepared executive to make a smooth transition and position Telefonica…at the forefront of the digital sector,” the company said, in a statement. Alierta will remain on Telefonica’s board of directors and will retain his position as executive chairman of Fundación Telefonica, the group’s corporate social responsibility arm.

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