Telefónica, the last telco in the EU stalked by the Arabs in their desire to become an "economic power" beyond oil

Powerful gentleman is a gift of money also in the telecommunications sector. One more proof has been the acquisition by STC Group, the main Saudi operator, of a 9.9% stake in Telefónica for a total amount of 2,100 million euros.. This makes the group the main shareholder, but it has assured that it does not want to take control of the entity, strategic for Spain.. But this is just one more piece of a relevant puzzle at the European Union level; or a house of cards that has been shaky in recent times.

“Telecommunications infrastructures are a fundamental element for the strategic autonomy of the EU, but several obstacles have been emerging that make it difficult to meet the objectives of the Digital Decade”, explain Raquel Jorge Ricart and Judith Arnal in a report by the Elcano Royal Institute. Added to this is the fact that stock market prices have been declining, therefore opening the door to foreign investments.

STC President Mohammed K. Al Faisal commented that his company shares many similarities with Telefónica and highlighted that “this important long-term investment” is aligned with “the growth strategy” of his company, which has already made investments in the information sector. communication and technology, both in Saudi Arabia and abroad. “The investment is very profitable for STC. Telefónica's cash flows are very interesting and at the current price it gives an 8% profitability in dividends, which is outrageous in a company that is so safe and with a projection of increasing its price,” says Leticia Poole, professor of Economics and Company of the European University of Valencia, as reported by Jacobo Alcutén.

In fact, the case of Telefónica is not the first.. and may not be the last. And the Arab group E& confirmed in July talks to fully enter the European markets through a collaboration with PPF Group, based in the Czech Republic. PPF Group consolidated its position in the European telecommunications market with the acquisition of Telenor's assets in Hungary, Bulgaria, Montenegro and Serbia for €2.8 billion in March 2018, after previously acquiring O2 in the Czech Republic and Slovakia.

Since then, it has divested itself of the Montenegrin business and separated its retail telecommunications businesses from infrastructure, but maintains its intention to be a medium-sized European telecommunications operator, although this requires Arab investment.. Since then, talks between the parties have been taking place at the highest level, seeking, they say, a “strategic collaboration in central and southeastern Europe.”

David Hernández, analyst at El Orden Mundial, explains to 20minutos that since Saudi Arabia approved the Saudi Vision 2030 plan, “it has set three major objectives: modernize its economy and reduce dependence on oil; attract new foreign investments and strengthen the private sector; and become a great economic power, which not only has a leading role in the oil sector”. From Arabia they understand that the world order “is changing and that is why these great strategic objectives are being set” for the medium and long term.

Hernández highlights that there are several sectors that the country wants to promote. “One of them is tourism, as seen for example in the sports sector, but also telecommunications” because Saudi Arabia wants to be an important “industrial hub for the region”. Thus, STC is 65% controlled by the public fund, and is one of the large telecommunications companies in the Middle East: “It is specialized in the field of 5G and is also beginning to work in Africa and Europe”. But he goes a step further and maintains that “the maneuver of Spain and Telefónica surely revolves around looking even further, also in Latin America.”

It is, again, a strategic question. “We have to understand that for Saudi Arabia, European countries are increasingly less relevant. “Arabia has been able to balance its relations, reduce its dependence on the US and Europe and even these countries increasingly have a closer relationship with Russia,” summarizes the analyst.. Europe and Spain are playing a lesser role at the political level, “but it could be said that Spain has a preferential position for foreign policy”, and he gives as an example the agreements on Defense, so relevant in the times that they run

Arabia has been able to balance its relations, reduce its dependence on the US and Europe

In this context of difficulty, Thierry Bréton, Commissioner for the Internal Market, stated in 2022 that “high-speed Internet requires large investments”. For this reason, Elcano insists, in addition to facilitating the deployment of networks in the short term, Brussels is “examining the important question of who should pay for new generation connectivity infrastructures.”

In September 2020, the Commission already approved a Recommendation urging Member States to boost investments in broadband and very high capacity connectivity infrastructure.. In addition, once the Connectivity Special Group was set up a month later, a subgroup made up of representatives of the Member States was created to dedicate specific efforts to studying the reduction of the costs derived from the deployment of electronic communications networks.

In the particular case of Telefónica, the Government had to respond to the information and assured that it will preserve “the strategic importance” of the company in the medium and long term.. “The Government has the ability to value these types of investments that do not affect the control of the company. There are channels to preserve our strategic autonomy that the Government puts in place, and what I want to emphasize is that Telefónica is not only an emblematic company in our country, but it is a strategic company, a strategic operator and that the Government will ensure. “, of course, for the strategic autonomy of Spain with absolute normality and tranquility,” summarized the spokesperson for the acting Executive, Isabel Rodríguez, in statements to TVE.

From STC they reiterated, in this scenario, that they have no intention of acquiring control or a majority stake in Telefónica. “This is a great investment opportunity that allows us to use our solid balance sheet and at the same time maintain our attractive dividend policy,” they noted.. All in all, this acquisition represents “another important milestone” in its expansion and growth strategy, and reflects confidence in Telefónica's sustainable growth and upside potential.

As part of its growth strategy, STC has made a series of investments in the information, communication and technology sector, both in Saudi Arabia and abroad, the most recent being the acquisition by its subsidiary Tawal of the assets of United Group telecommunications towers in Bulgaria, Croatia and Slovenia.