Telefónica Hispam points finger at Peru after FY23 earnings dip

A somewhat weaker performance by Telefónica’s Hispanoamérica operating segment in the year to 31 December 2023 (FY23) has continued to indicate that the Group has more work to do on reshaping of assets to deliver a consistent return from its smaller regional businesses.

Even when removing the impact of currency weakness across many Hispam markets, revenue fell by 0.1% to €8.38bn and operating income before depreciation and amortisation (OIBDA) by 4.8% to €1.5bn. The Group blamed the drop in OIBDA on lower revenue in Peru, attributed to the nation’s political and economic environment as well as competitive pressures.

Speaking in the days after the results announcement, at Mobile World Congress, Alfonso Gómez Palacio, CEO of Telefónica Hispam, reaffirmed the operator’s interest in new business models, enabled by M&A and infrastructure collaboration, to offset pressures in the region. “Today we believe in alliances as the best way to get where we need to go, because in addition to making us more efficient, they allow us to provide better customer service, strengthen our commitment to the state, society and, above all, our shareholders”, he said.

He echoed comments from Laura Abasolo, Group Chief Financial & Control Officer and Head of Telefónica Hispam, during Telefónica’s Capital Markets Day presentation in November 2023, , where she acknowledged that the Group continues to face some short‑term uncertainty over future Hispam proceeds from a long-running tax dispute in Peru, and may perform more deal-making to further reduce regional exposure (Telefónicawatch, #172).

Late recovery

On a more positive note, Hispam returned to quarterly growth in the last three months of 2023 (Q4 FY23), after a dive in Q3. Revenue increased by 1.7% on an organic basis (i.e. when excluding currency movement), and the Group observed that the figure was boosted by the effect of revenues related to “the exclusivity” with regional FibreCos in Chile and Colombia, created by Telefónica Hispam with investor KKR, to connect accesses to the fibre network.

Around €68m was contributed by ON*NET Fibra Chile and €35m by ON*NET Fibra Colombia, which passed 3.6 million premises at the end of the year. The JV in Chile recently secured regulatory approval to acquire rival telco Entel Chile’s fibre assets (Telefónicawatch, #168), adding approximately 1.3 million households passed to the ON*NET footprint, to bring it to a total of 4.3 million. The so‑called “exclusivity revenues” also enabled Hispam to increase OIBDA by 8.8% in Q4.

Capex trending downwards

Overall, senior management spent little time on the Hispam unit during the FY23 earnings call, mainly highlighting that the ongoing move towards an asset‑light model in the region has resulted in a decline in average invested capital of 37% since December 2019.

According to the report, Hispam capex including spectrum fell by 4.4% in FY23 on an organic basis.

Abasolo also noted that regulatory approval of the deal to create a new FibreCo in Peru is expected in the second half of the year. In July 2023, investment firm KKR agreed to acquire a controlling stake in PangeaCo, the fibre venture established by Telefónica Peru in 2020, in a move to create the “nation’s largest fibre‑optic network”.

KKR will also acquire the existing fibre assets of Entel Peru and Telefónica Peru through PangeaCo, which will be combined to create a new entity, dubbed ON*NET Fibra Peru. At the end of FY23, PangeaCo’s fibre network passed 3.2 million premises. Its target is to pass 5.2 million premises by FY26.

In addition, Abasolo was keen to point out that Telefónica Colombia and Millicom International Cellular‑owned rival Tigo Colombia obtained access to 80MHz of 3.5GHz frequencies in a joint purchase in December 2023 (Telefónicawatch, #174, #176, and #178).