Telecoms boss happy to live in turbulent times

Date: 30/10/1997

By Chris Johnstone

JUAN Villalonga, the chairman and chief executive of Spanish telecoms company Telefónica, is cursed, or blessed, with living in interesting times.

A recent visit by Villalonga to Brussels ironically coincided with a rash of headlines in Spanish newspapers declaring how far Telefónica's charges to rivals for access to its network were out of line with European Commission guidelines and how it was likely to be wrapped on the knuckles by its national regulator. It had just been rebuffed by the same regulator over a new price-cutting scheme for big business.

And while Telefónica has recently lost its formal monopoly over basic telephone services, with rival Retevision entering the market, the company's critics at home claim it still retains a de facto monopoly.

In spite, or because of this, Telefónica's boss was effusive in his support for telecoms liberalisation and competition. “We fully support the reduction of interconnection tariffs in the way the Commission has proposed and support market opening,” he said during his stay in Belgium last week.

Somewhat strangely for the head of a company whose main interest is centred on the Latin American market, Villalonga was visiting the Union's capital as one of a team of top European business leaders taking part in a forum on EU/Hong Kong cooperation. “We are seeing how we can bring together and develop relations with the Asian world,” he said.

But it is Brazil, with 160 million inhabitants and only six phones for every 100 people, which is the real prize and investment target for Telefónica. “Brazil's current privatisation and attempts to boost competition are a model of their kind,” enthused Villalonga, who also met Trade Commissioner Sir Leon Brittan for a regular exchange of views on bringing Europe and Latin American closer together.

Telefónica's boss was diplomatic and phlegmatic about the current turmoil in the telecoms alliances it has signed up to.

The Spanish firm is part of separate partnerships with US-based MCI and British Telecom, with a view to taking part in their Concert joint venture. Now rival US telecoms companies GTE and WorldCom have put in their own bids for MCI. “Both the GTE and WorldCom offers are very interesting,” said Villalonga, anxious not to show any preference, although most press speculation has suggested GTE might be a better fit for his firm.

“That is just an anecdote,” he said when asked why Telefónica's share price bounced back after the announcement of GTE's interest in MCI. “We are in a position of wait and see.”

Telefónica still wants to pursue its deals with MCI and BT, but warns that it has an escape clause for both or either if things do not go according to plan. “We are in a very strong position. All institutions realise our leadership position in Latin America,” said Villalonga.

Domestically, Telefónica reckons that competition for basic services will cut its domestic market share for long distance calls by between 30&percent; and 35&percent; and for local calls by around 10&percent; over the next three years. But Villalonga remains optimistic about the future. “We hope this loss of market share will be more than compensated by the growth in the overall market,” he said.

Although the Spanish phone regulator has rejected a new package of price reductions for corporate customers, Telefónica says it respects the regulator's position but views such packages as part of the competitive future. “What is important is that in a few months from now we can offer these packages to our customers,” said the chairman, adding that the company should be given more freedom to decide tariffs, with the government only setting upper limits.

The prospect of the Internet eventually offering a cheap, world-wide phone service to rival established telecoms services is being watched by all companies, says Villalonga. Telefónica has opted to go with the flow by offering Internet access through its InfoVia company.

“The growth in domestic traffic is running at around 10&percent;, with around a third of that coming from InfoVia,” he explained.

The company's ambitions in the audio-visual field are mostly confined to owning cable and satellite channels and distributing other companies' films and programmes rather than owning the content, says Villalonga.

However, it will look to buy some of the content it distributes. “There is a trend towards the integration of all services, be they voice-telephony, television, or the Internet. Our research has shown two big needs for our customers which they are willing to pay for: voice-telephony and television. A key content for television is soccer,” he explained.

“In three years from now, we will have more than 10 million customers for cable TV and digital distribution over satellite. At the moment, we only have 1.7 million. We do not want to produce or buy the rights to all the material we will distribute. The main aim is to offer access to our 10 million viewers.”