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Telefonica CEO Murtra to present strategic plan by year

end

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Group eyes assets in Germany, UK, Spain, Brazil -Murtra

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Murtra urges European regulators to allow more telecoms

M&A

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Europe needs large technology operator, says Murtra

By Andres Gonzalez

LONDON, Sept 8 (Reuters) - Spanish telecoms group

Telefonica is looking to buy telecom assets and free up

resources by selling its Spanish-speaking Latin American assets,

as CEO Marc Murtra plots a broader vision for Europe's telco

sector.

The group is eyeing assets in Germany, the UK, Spain and

Brazil, Murtra told Reuters as he prepares his first strategic

plan for Telefonica after taking the helm in January.

While wanting to chase scale, the Spanish group must

maintain its investment grade credit rating, he said.

Regulators have long pushed back against mergers between

European operators, fearing a few dominant players would be able

to increase prices and margins to the disadvantage of the

consumer, but Murtra argues that Europe's market is too

fragmented.

In 2024, there were 41 companies in Europe that offered

mobile services to more than 500,000 customers each, compared

with five in the United States, four each in China and Japan and

three in South Korea, according to Connect Europe.

Murtra, who was president of Spanish defence and technology

group Indra until early this year, says the market is

changing with the development of new technologies including AI,

and Europe needs to keep up or lose out.

European telecom groups should be allowed to expand and in

exchange invest in other, related sectors such as cybersecurity

and infrastructure including data centers, as a "social

contract" between authorities and companies, he said.

"If Europe wants strategic autonomy and technology,

we're going to have to have large or titanic European technology

operators," Murtra, 52, told Reuters.

"I don't want to be overly dramatic, but imagine a Europe

where the satellite systems, the hyperscalers and artificial

intelligence are in the hands of tech bros - and this could

happen."

Murtra, who is also Telefonica's executive chairman, has

been speaking in recent months to regulators and leaders about

his proposal, according to a person familiar with the talks.

Reuters could not determine how those conversations were

received.

"This does not require a titanic shift," Murtra said of his

plan. "All it needs is to lift the brake pedal a little bit and

allow the market to operate and consolidate."

POTENTIAL TARGETS

The sector is showing some signs of M&A activity, including

reports that Orange, Bouygues and Iliad are

exploring a deal to carve out Patrick Drahi's French telecom

operator SFR. Owner Altice said it had not received any offer.

To give Telefonica financial headroom to do more dealmaking,

the company has agreed to sell its units in Argentina and

Uruguay, and is working with advisors on potential sales in

Chile, Mexico and Ecuador, according to three sources with

knowledge of the talks. Telefonica declined to comment.

The sales could unlock up to 3.6 billion euros ($4.21

billion) in firepower for M&A, according to analysts at Kepler.

Telefonica would not comment on reports it is considering a

capital raising to fund acquisitions.

Potential targets for Telefonica could include Vodafone

Spain, a joint venture or the acquisition of 1&1

in Germany, assets in Brazil, or even a 50% stake in

Virgin Media O2 held by its partner Liberty, according

to dealmakers familiar with Telefonica's thinking and analyst

reports.

Vodafone Spain and VMO2 declined to comment, while 1&1 said

it doesn't comment on market rumours.

Telefonica declined to comment on targets.

A CONDITION FOR MERGERS

Murtra was parachuted in by the Spanish government to lead

Telefonica in January.

The group's shares have since rallied as the company readies

to present a new strategy by the end of the year. But its market

capitalization has still halved since 2015 and its shares are

among the top 10 most shorted in Europe, excluding the UK,

according to S&P Global Market Intelligence Data.

Some analysts see merit in Murtra's proposal.

"The regulators gain strategic investments and improvement

in the quality of the networks, and on the other side, you have

the operators gaining scale, which is absolutely fundamental in

this industry," said Carlos Winzer, senior vice president at

Moody's.

European Union regulators have been considering easing rules

for telecom mergers.

Geopolitical tensions have added to the urgency, with Europe

planning to pour billions into defence and critical

infrastructure, which includes telecom networks, bankers said.

"The geopolitical situation will help make European

authorities more open to listening. They have no alternative,

because the telecommunications sector is constrained and can no

longer attract cheap capital to continue investing in

infrastructure," said Javier Cabrera, market analyst at XTB.

Some investment bankers predict active consolidation within

countries over the next couple of years, which could be followed

by cross-border dealmaking.

"Telefonica's push could trigger others," said Winzer.

"There are other incumbents throughout Europe, like Orange and

like Deutsche Telekom and BT , which may

follow Telefonica's initiative if there were to be M&A,

especially in markets where there are four or more operators."

($1 = 0.8542 euros)