Telefonica'S New Chief Makes Bold Moves

For somebody who has only recently entered the telecoms sector, Juan Villalonga, Telefónica chairman, has made a lot of headlines in the industry. With less than a year in the job, he has supervised the full privatisation of the utility in the biggest domestic stock market issue to date; formed an Iberian partnership with Portugal Telecom; and as of Friday sparked a radical overhaul of global telecoms alliances.

'The first document I saw when I sat down at this desk,'' he said on Friday in his wood-panelled office overlooking downtown Madrid, 'was the board's approval of our agreement with Unisource.''

 

He has precipitated Telefónica's exit from this alliance, which brings together the national operators of The Netherlands, Sweden and Switzerland, by preferring to join forces with Concert, which groups British Telecommunications and MCI.

What stung him into action was that the Unisource agreement included the possibility of selling equity in Tisa, Telefónica's international unit, which is the dominant foreign operator in Latin America, to AT&T, the US telecoms company which had chosen Unisource as its partner in Europe.

Being new allowed Villalonga to be brash and bold. He did not feel particularly bound by the agreement to join Unisource, which his predecessor had forged months before a general election victory brought a new party, the centre-right Popular Party, to power.

And AT&T's link with Unisource did not unduly impress him. The fact that he was on the political inside track helped. The elections put an end to a long period of power for the Socialist party, and Villalonga, who is a close friend of the new Prime Minister José María Aznar, went overnight from running the Spanish office of a US investment bank to heading Telefónica, the country's biggest corporation. 'My first strategic decision was that Telefónica would be among the top five telecoms companies in the world and that the way to achieve this was to build up our natural market in the Spanish-speaking world,'' Villalonga says.

This remains his key decision, and it led directly to yesterday's high- profile public embrace with Concert.

Under the Unisource deal, the government, which owns 24 per cent of Tisa, could have sold part or all of this stake to AT&T.

'That was the last thing I was prepared to allow. I want all of Tisa for Telefónica,'' Villalonga says.

He plans to acquire the government's stake in the subsidiary company within the next month.

The casualty of this decision was the European-orientated Unisource alliance and, especially, AT&T's designs on Telefónica's Latin American business.

Villalonga urgently needed an international strategic partner, but preferred to see AT&T as a rival that he could, with the right ally, outflank in Latin America than as a partner that might gobble up his company.

MCI, AT&T's competitor in the US, was a perfect fit for Villalonga's ambitions in the Spanish-speaking world. The Concert venture with BT, which secured Telefónica an ally in Europe, made the deal that much more attractive.

Villalonga sensed early on that should he reach any agreement with MCI, AT&T would force Unisource to eject the Spanish operator.

Bert Roberts, MCI chairman, praised Villalonga on Friday as 'a man of vision''.

In fact, the investment banker turned telecoms chief had simply done his sums.