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Telefonica and Telecom Italia appoint new leaders, but is either one likely to effect a major strategy shift?
The changing of the guard at two major European telecoms operators dominated headlines in the industry this week, but does new blood really mean new ideas for Telecom Italia and Telefonica?
While we weren’t necessarily expecting the announcements when they came, the news of the departures of chief executives Marco Patuano and Cesar Alierta from the Italian and Spanish incumbents respectively came as no real surprise.
Telefonica’s new executive chairman – pending board and shareholder approval – José María Álvarez-Pallete has been earmarked for the top job since he was appointed as Alierta’s chief operating officer in 2012. And with Alierta approaching his 71st birthday, having served as CEO for the past 16 years, it was perhaps to be expected that plans to enjoy retirement would be on the cards.
In comparison with his Spanish counterpart, Patuano was a newcomer to the CEO role, which he took on in late 2013, but he had been with Telecom Italia since graduating from university in 1990, holding a number of executive positions, including CFO and COO.
The manner of his departure was also different. Patuano tendered his resignation last week, having reportedly been under pressure from Telecom Italia’s new major shareholder Vivendi for some months. The French firm is keen to influence Telecom Italia’s strategy, its goal being to focus on the media side of the business in Southern Europe and pull out of Brazil.
However, when Telecom Italia announced the appointment of Flavio Cattaneo, chief executive of Italian railway company NTV, as Patuano’s successor on Wednesday, it gave no indication that a new leader would bring a change in strategy. Cattaneo’s responsibilities will include "implementing and developing the strategic, industrial and financial plans and all the organisational responsibilities to ensure the management and development of business in Italy and South America," a statement from the telco read.
In addition, Cattaneo is already a member of Telecom Italia’s board, suggesting its directors do not intend to deviate too far from the operator’s current strategic direction.
That said, Vivendi now has four representatives on the board, which puts it in a stronger position to exercise its influence. The firm has gradually increased its stake in Telecom Italia in recent months and now holds 24.9%, putting it just shy of the 25% mandatory takeover offer threshold. While there is no evidence Vivendi is preparing a buyout, such a move is not out of the question. And with TIM Brasil being the only one of the big four mobile network operators in Brazil without a significant fixed-line operation – Telefonica snatched broadband operator GVT from under Telecom Italia’s nose last year, handing Vivendi its initial stake in the company in the process – Cattaneo will have his work cut out managing that business without taking some form of action.
Meanwhile, there is even less chance of any major strategic change at Telefonica.
Álvarez-Pallete has been with the Spanish telco for even longer than his predecessor, arriving 17 years ago as chief financial officer of Telefónica Internacional; in the intervening years he has held various senior posts, including group CFO and executive chairman of Telefonica Europe and Telefonica Latinoamerica.
When announcing his appointment as CEO, Telefonica did its best to intimate that it is heading in a fresh new direction, describing the new leader as the best choice to "position Telefónica…at the forefront of the digital sector." However, that is essentially the vision Alierta, like many of his industry peers, was also working towards.
Unlike Telecom Italia, there are no question marks over Telefonica’s presence in Latin America, where it generates more than half of its revenues. However, the region will prove a challenge for the new leader, in no small part due to the ongoing economic weakness in many markets.
Álvarez-Pallete will also have a lot to do closer to home. Telefonica saw revenues tick up in Spain last year and it remains the dominant player in the market. However, its main rivals have stepped up their games in recent years, employing M&A strategies to enable them to take advantage of the trend towards converged service offerings; with the acquisitions of Ono and Jazztel respectively, Vodafone and Orange have added significant fixed-line capabilities to their portfolios.
It’s a trend that is sweeping Europe. Telecom Italia will lose its position as Italy’s largest mobile operator if the proposed merger between Vimpelcom’s Wind and Hutchison’s 3 Italia passes regulatory scrutiny.
This week, the European Commission announced it will conduct an in-depth investigation into the merger, citing concerns over reduced competition in the mobile market and the risk of higher prices for consumers. It has 90 working days – until 10 August – to announce its decision.
There are no guarantees the Commission will approve the deal, and the imposition of pro-competition remedies is almost a given. Whatever the outcome, it will certainly give Cattaneo something to think about during his first few months in office.
