Telephones from Toledo to Tierra del Fuego
Dec 10th 1998
From The Economist print edition
Juan Villalonga, chairman of Spain's Telefonica, is one of the few people still prepared to
bet his company on emerging markets. Is it a good bet?
IN A world more linked by language than divided by distance, a recent decision by Juan Villalonga
is as symbolic as Hernan Cortes's to burn his boats and thereby prevent a return from the land he
had claimed for Spain. Telefonica, Mr Villalonga decreed, would drop "de España" from its name.
The logic? No longer does Telefonica see Peru, Chile, Brazil and the rest of Latin America as
emerging markets; they are part of its "domestic market".
Mr Villalonga has a dream: to rebase Spain's privatised former telephone monopoly in the new
world. He has even suspended Telefonica's dividend, replacing it with a share issue, so as to
conserve cash for more investment in Latin America. He is pitting his dream against the collapse
of many emerging economies and a 20% fall in Telefonica's net profits from Latin America in the
first nine months of 1998.
Such a grand scheme was not planned when Mr Villalonga was made chairman of Telefonica in
June 1996. A cigar-puffing financial technocrat and a school chum of Jose Maria Aznar, Spain's
prime minister, his appointment was seen in Madrid as a typical piece of cronyism. But he set to
work immediately, replacing ageing bureaucrats with a small team of cosmopolitan investment
bankers who have sharpened up the headquarters of the once dowdy utility (one pinstriped visitor
compares lunch at Telefonica to Annabel's nightclub in London in the 1980s). True to his dealmaking
roots, Mr Villalonga leads from the front, mobile phone at hand.