Blog Post

Tough for Telefónica as Euro mobile goes down the pan

There’s no doubt that many European businesses are struggling right now, but it seems the pain is worse for some than it is for others. For example: Spanish operator Telefónica, the world’s third largest mobile firm, seems to be taking a hiding.

The company has just reported its latest results, and they’re not good. While revenues were up slightly to €62 billion, profits saw a dramatic 47 percent drop on last year to €5.4 billion (that’s $7.2 billion). And the company said the decline was expected to carry on through 2012.

The company, which operates a number of major mobile and broadband brands across Europe, Central and South America, said the decline was starting to slow down — but it was still a decline.

While people continue to buy the company’s services voraciously — the company’s revenues have been stable and even growing, despite the financial crisis — the profitability of its mobile operations seems to be plummeting. Compare this year to 2007, before the crash, where revenues were at €56 billion, and profits were almost €9 billion.

In its home market Telefonica is facing some particularly poor conditions. Unemployment in Spain is currently running at 23 percent, and consumer confidence is riding very low indeed. Combine that with the move away from cash cow products like SMS — one analysis said social messaging services cost operators $14 billion in revenues in 2011 — and you’ve got a recipe for impending doom.

Of course, it’s not the only European mobile company that is finding it hard going right now. The travails of Nokia and Siemens are well-documented, and Deutsche Telekom just posted a €1.3 billion quarterly loss off the back of its failed attempt to sell T-Mobile USA to AT&T.

No surprise, then, that the Wall Street Journal took the time to outline the company’s problems in America. Is the writing on the wall for Europe’s mobile giants?