Group CEO Marc Murtra claims the EU regulation is the greatest obstacle to telcos’ success in Europe: in Germany, fixable, structural inefficiencies could hold Telefónica back
This week, European Union (EU) leaders met at an informal summit to discuss better integration of the EU’s single market. The burden faced as a result of the EU’s fragmented regulatory landscape is most keenly felt in the telecoms industry. The industry has for some time been lobbying for more uniform regulation across member states, as well as a more relaxed approach to mergers and acquisitions, arguing that the only way that Europe can compete in the face of increased pressure from the US and China is to allow its tech companies to scale up.
Lancashire-born Marc Murtra, Group CEO of Spanish telecoms giant Telefónica, has been one of the most vocal industry leaders on this point. In November last year he announced his five year Transform to Grow plan which involved divesting most assets in Latin America and focusing on consolidation in key European markets: Spain, the UK and Germany, as well as Brazil.
Delivering this strategy will require both clear thinking and decisive action, particularly in Germany which accounts for almost 30% of the group’s revenues.
Opportune loss of the 1&1 contract
In August 2023, Telefónica’s German subsidiary, Telefónica Deutschland, suffered a serious blow when it lost a key contract with wholesale customer 1&1 AG, part of United Internet Group, to Vodafone. The announcement triggered a sharp market reaction with Telefónica Deutschland’s share price falling by around 30%.
At that time, Telefónica owned about 72% of its German subsidiary. It did not try to reassure minority shareholders that the drop was temporary but instead launched an opportunistic tender offer for the remaining shares. By 2024, its ownership had increased to 97% and the company was delisted, citing limited share liquidity. While this €1.66 billion move gave Telefónica near total control, the remaining 3% free float could still create legal and regulatory headaches for Murtra as he seeks to consolidate the German market.
Minority shareholders at Telefónica Deutschland have extremely strong protections enshrined in the country’s securities law. They effectively say that the directors of Telefónica Deutschland must act independently of those at Telefónica in Spain, and in the sole interests of the German subsidiary. This creates a bureaucratic, two-tier structure.
Living with the Haas legacy
The decision to increase Telefónica’s stake followed several years in which Telefónica Deutschland, under its former Chief Executive Markus Haas, struggled to translate its market position into shareholder value. Haas reduced investment expenditure and failed to utilise tax loss carry forwards of more than €4 billion that could have materially reduced future tax liabilities. He also reduced dividends to the statutory minimum required by German law and in 2025 did not even pay the statutory minimum.
Haas also allowed the company to participate in a group-wide cash pooling scheme which effectively turned Telefónica Deutschland into the group’s cash cow. Throughout 2024 Telefónica Deutschland averaged €243 million in monthly contributions to the cash pool. This number increased to €320 million a month on average in the first half of 2025.
Game-changing opportunity looms
It is now widely rumoured that Telefónica is targeting an acquisition of 1&1 in a deal worth up to €5 billion. The strategic benefits of this are clear. 1&1 customers are higher spenders than those of Telefónica Deutschland. It has been estimated that annual revenues could rise from a little over €8 billion to close to €12 billion after the deal.
Telefónica could undertake this acquisition without significant additional borrowing or an immediate capital increase. Furthermore, it would regain the business – effectively 12 million customers – it lost when 1&1 switched its wholesale contract to Vodafone.
However, moving forward with this acquisition may not be straightforward. Telefónica Deutschland’s current ownership structure, with a small but legally empowered minority shareholder base, introduces governance constraints that can distract management, complicate strategic decision-making and potentially hinder and delay M&A activity. These difficulties could be exacerbated if minority shareholders decide to challenge the fact that the company appears to have been run for the benefit of its majority shareholder.
Time to fix the plumbing
With a new CEO, Santiago Argelich Hesse, in place at Telefónica Deutschland since the start of the year, now would seem to be a good time to fix the plumbing. A simple first step would be for Telefónica to secure full ownership of its German operation. This would remove inefficiencies that could hinder growth and allow the Group to move ahead with its expansion plans in one of Europe’s most lucrative markets.
It is looking increasing unlikely that Murtra and his peers will win the fight in Brussels. The EU’s competition commissioner, the Spanish socialist Teresa Ribera, has made it clear that she will not allow the need for greater global competitiveness to be a pretext for market concentration. The decisions this week in Brussels on integration of the EU single market will be out of Murtra’s control, but better integration within the Telefónica group is firmly within his reach.
About the author
Chris Dziadul is an expert telecoms commentator and former telecoms correspondent for the Financial Times
