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Telefónica’s Strategic Move: Workforce Reduction and Profitability Focus

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Telefónica, the prominent Spanish mobile operator, has recently signaled to labor union representatives its plans to reduce its workforce in Spain. An UGT spokesperson authenticated the development, stating, “Next week the negotiating tables on these redundancies will be set up and the official number of workers affected will be communicated.”

However, a specific consensus on the number of job losses is absent, with varying reports creating inconsistent expectations. According to the Spanish newspaper Expansion, Telefónica plans to cut down its 21,000 strong workforce by approximately 2,500. Meanwhile, Cinco Dias forecasts a larger figure of potentially 3,000 jobs being at risk.

This reduction in personnel is part of a broader move by Telefónica to diminish their capital expenditure, enhance revenue, and reduce costs to improve profitability. This strategic shift came to the forefront in July when Telefónica announced plans to realign their focus towards cash generation, following extensive company restructuring. The company revealed this renewed focus during their capital markets day earlier this month.

In the company’s 2023 Q2 earnings report, José María Álvarez-Pallete, Chairman of the company, outlined, “Telefónica is moving towards a new vision of the company with its 2023–2026 plan, a new model of operational excellence based on three pillars: Growth, Profitability, and Sustainability.”

The ambitious 2023–2026 plan sets specific financial targets, including a projected annual revenue growth rate of 1%, an EBITDA growth rate of 2%, an operating cash flow (EBITDAaL – CapEx) of 5%, and a free cash flow exceeding 10%.

However, Telefónica isn’t the only company partaking in workforce reductions. The unstable global economy and its knock-on effects on revenues undermined Nokia and Ericsson, prompting them to announce significant job cuts. In parallel, BT and Vodafone have shared similar strategies by announcing job cuts in the UK.

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