Telefónica de Espa

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Telefónica de España, S.A.

Gran Via 28
E-28013 Madrid
Spain
(1) 531 7634
Fax: (1) 531 5825

Public Company
Incorporated: 1924 as Compañía Telefónica Nacional de España S.A.
Employees: 71,155
Sales: Pta710.90 billion (US$7.36 billion)
Stock Exchanges: Madrid Barcelona Bilbao Valencia London Paris Frankfurt Tokyo New York

The Spanish telecommunications industry has grown from telegraphy between cities in the early 1850s and the first local telephone conversations in 1877 into a huge, high-technology international system. For the latter half of the industry’s history, the government-controlled public company known since May 1988 as Telefónica de España, S.A. (Telefónica), has been the dominant element.

Telefónica holds official concessions for the supply and operation of most of Spain’s domestic and international telecommunications services. Through its subsidiaries it also designs and manufactures telephone terminal apparatus. The Spanish telephone network, the company’s original raison d’etre, is now the ninth-largest in the world. Telefonica’s activities, however, extend beyond its responsibility for the public service telephone system, which is now fully automated. It has moved into wider technological fields, integrated business communications, computer systems, semiconductors, and satellite communications, making many innovations. The company shares the provision of Spanish telecommunication services with the Dirección General de Correos y Telecomunicaciones (CyT), which is responsible for postal services, telegrams, and telex, using lines leased where possible from Telefonica. By far the largest company in Spain, Telefonica owns 4% of the country’s gross capital stock. Its turnover represents 1.5% of the total annual value of the economy, and it employs 1.5% of Spain’s industrial work force. It also has extensive interests in Europe, North and South America, and the former Soviet Union.

Compañía Telefónica Nacional de España S.A. (CTNE), as it was officially called until 1988, was founded in Madrid on April 19, 1924, with capital of Ptal million, divided into 2,000 ordinary shares. Until then, the Spanish telephone service had been a muddle, supplied since its inception in 1877 by private individuals and small French and Spanish companies holding government concessions. These companies operated incompatible and inefficient manual systems under severe government restrictions, paying heavy royalties to the state. In the first decade of the 20th century, Barcelona, with 3,000 telephones, possessed the largest of such systems. Successive royal decrees from 1882 onward had failed to bring order out of the chaos created by these concession holders, so the Spanish government decided that the responsibility for Spain’s telephones should be entrusted to a single body. On August 25, 1924, the government was empowered by another royal decree to sign a contract with the new Compania Telefonica Nacional de España, conferring upon it the monopoly for operating the national telephone service. CTNE’s task was to acquire the telephone operations and premises belonging to the existing private companies, or those that had reverted to the state, and to organize, integrate, develop, and modernize—in particular by a drive toward automation—Spain’s urban and trunk telephone networks. One condition of the contract was that at least 80% of CTNE’s employees must be Spanish nationals.

CTNE came into being as a result of a takeover by the International Telephone & Telegraph Corporation (ITT) of one of the existing Spanish telephone companies, created in 1899. The brothers Sosthenes and Hernand Behn, who had previously operated telephone companies in Puerto Rico and Cuba, set up ITT in 1920 as a U.S. holding company for their current and future enterprises. The companies were destined to become an international telephone system with corporate headquarters in New York. When in 1924 Spain was chosen for ITT’s entry into Europe, local investors came forward, influential Spaniards were invited to serve on the board of the new subsidiary, and the goodwill of Miguel Primo de Rivera’s authoritarian government was secured. As a private-sector company providing a public service, CTNE would be subject to tensions between nationally and shareholder-oriented strategies. Telefónica is still accountable to the Ministry of Transport, Tourism and Telecommunications, and a nonvoting government delegate sits on the Telefónica board. Although it is government controlled, Telefónica has benefited from a high degree of autonomy. The Spanish telephone service was never hampered by being linked, as in some countries, with postal services, or by being administered directly by the state civil service.

In CTNE’s early years, its efforts were concentrated on the arduous task of extending and improving the existing telephone service. It was operating in a largely agricultural, undercapitalized economy, and its geographical context was a vast mountainous central region, sparsely populated and difficult to access, bordered by coastal strips and plains containing most of the population. Prosperity varied sharply between regions and classes. The political background was unstable and would eventually erupt into the Spanish civil war of 1936 to 1939. The new company set to work briskly in September 1924 and by the end of 1925 had 1,135 exchanges and “centers,” nearly twice as many as it originally had. Some that were very small were operated by a family or individual, and some village centers consisted of a single pay phone in a private house. In 1925 CTNE’s first underground cable was laid in the Escorial Palace near Madrid, and the site of the company’s imposing headquarters in Madrid’s Gran Via was purchased. In 1926 new manual exchanges were built in 48 cities, and in 37 other cities existing exchanges were refurbished. When King Alfonso XIII opened the new Spanish intercity telephone network in December, its 3,800-kilometer circuit constituted a European long-distance telephone record. By then the number of manual exchanges in operation had risen to 1,397.

In 1926 the company’s long-term drive toward the full automation of Spain’s telephone system was under way. The automation process, which had actually begun just before CTNE’s time, in 1923, with an automatic exchange in Balaguer, would be finally completed in 1988. Between 1926 and 1929 automated rotary switching systems were installed first in San Sebastián—an L.M. Ericsson AGF type with 5,300 lines—and then in 19 other city exchanges. Rotary switching systems are electromechanical devices—first semi-automatic, later automatic—using rotating shafts to effect telephone connections. They superseded manual operators. At the same time the company was extending the basic network by opening hundreds of large and small manual exchanges. In Madrid one manual exchange and two automatic Rotary 7-A exchanges with 10,000 lines came into use at the opening of the CTNE main offices in July 1929.

In 1928 Madrid had acquired its first prepaid call token-operated telephones. In the same year, telephone communication had been established between Spain and Cuba, and the telephone link was made with Argentina and Uruguay in 1929. In 1930 the two main islands of the Canaries, Tenerife and Gran Canaria, were telephonically linked by underwater cable, while the next year a radiotelephone service was established between the Canaries and the Iberian Peninsula. Mallorca’s telephone link with the mainland was also established in 1931. Between 1936 and the early 1950s, CTNE’s development suffered severely, first from the upheaval and destruction of the civil war and then from Spain’s political and economic isolation, both during World War II and after the defeat of the Axis powers, which had been favored by the government of General Francisco Franco. Until 1945 most of CTNE’s capital was held by ITT. At that point, Franco’s government of 1939 to 1975 nationalized the company, taking over its stock from ITT and retaining 41% of the share capital, the rest going to more than 700,000 shareholders. In 1946 the state renewed CTNE’s contract. The company kept its monopoly over all civil domestic telephone services in Spain and was obligated to develop and extend them according to certain state requirements. This state contract remains in force, although it was extended and varied subsequently by governmental decrees and orders.

Under the chairmanship—from 1945 to 1956—of José Navarro Reverter y Gomis, the Compañía Telefónica expanded its facilities and continued the modernization of its equipment. In 1952 Madrid and Barcelona saw their first in-city radio car phones. Next year the company installed its first pulse code modulation (PCM) radiolink, between Madrid and the Escurial and in 1955 connected its millionth telephone. In 1957 a coaxial cable carrying 432 telephone circuits went into service, linking Madrid, Saragossa, and Barcelona, and the following year it became possible for Spaniards to telephone to ships at sea and planes in flight. The company’s installations-telephone sets, lines and cables, switchboards, and exchanges-were meanwhile keeping pace with, and often pioneering, the industry’s rapid technological advances. The company was no longer concerned only with telephones. Telecommunications technology was proliferating all over the world, permitting the transmission, emission, and reception not only of voice messages, but also of other sound signals, visual data, texts, and images via optical and other electromagnetic systems, including satellites, beginning in 1960. Noise and other interference with transmission of signals could be reduced by digital communications systems—PCMs—in which voice, picture, and other data were coded in binary form. International standard-setting and regulatory bodies had by this stage been set up.

From the early 1960s until the first oil crisis in 1973, Spain and CTNE enjoyed the años de desarrollo, or years of development. During most of this period, Telefónica was headed by Antonio Barrera, who was chairman from 1965 to 1973. There was a rise in the national standard of living. During the years from 1963 to 1964, the country passed the US$500 annual per capita income mark and was no longer to be counted as a developing nation according to the United Nations definition. Industrialization gathered speed, and there was a shift of population from the country to the towns. The demand for telephone services rose steeply and with it, especially in rural areas, the large backlog of would-be customers waiting to be connected or put within reach of a public phone. The crossbar automatic switching system was introduced into the company’s telephone exchanges in 1962. Crossbar systems are much faster than rotary ones and involve less friction and therefore less wear.

In 1964 CTNE took another pioneering step when it inaugurated Spain’s first experimental earth station, designed to work in conjunction with international communication satellites Relay and Telstar. This was followed by other such ventures, notably in 1970 the company’s earth station at Buitrago, to be used for telephone communication, data transmission, telegraphy, and black-and-white and color television, via the INTELSAT satellites (International Organization for Telecommunications via Satellites), or a combination of satellite and submarine cable. The goal of total automation was close to being accomplished. Automatic trunk dialing was introduced in 1960, and international trunk dialing appeared in 1972. In July 1971 a telephone service to the former Soviet Union was established, routed manually via Paris, and later the same year the company opened Europe’s first dedicated public packet-switched data transmission network. Toward the end of 1978 the first computer-controlled electromagnetic network exchange was installed in Madrid. In 1980 the first digital exchange systems were installed, and in the early 1990s the digitization of lines and exchanges continued to advance rapidly. By 1985 Telefónica was providing a network for the transmission of national and international television.

As the range of products and services grew and competition increased, there was a tendency for European countries to deregulate their telecommunications industries. Spain began planning to depart from its protectionist tradition at the end of the 1950s. Events contributing to this liberalizing tendency and paving the way for a more outward looking policy for the Compañía Telefónica included the election of the first Socialist government in 1982, the entry of Spain into the European Economic Community (EEC) in 1986, the 1987 EEC Green Paper proposing the deregulation of the newer parts of the European telecommunications market, and Spain’s 1988 telecommunications law, the Ley de Ordenación de las Telecomunicaciones (LOT). The LOT implemented some of the EEC proposals, but the Spanish government contested some of the Green Paper’s provisions, being particularly reluctant to see inroads made on its revenue from data transmission services.

At the end of 1982, the new Socialist government brought in the energetic Luis Solana as president of the Telefónica board. His objectives were to float the company on world markets, reduce the formidable backlog of telephone customers waiting to be connected, and make the company profitable, after the recession of the late 1970s and early 1980s. In 1983 net profits were up 11 % over the previous year, and by 1985 Luis Solana could claim that Telefónica was recovering. By adopting a 4-year purchasing plan aimed at procuring over 90% of hardware from Spanish suppliers, he helped save jobs in Telefonica’s subsidiaries. He announced various projects for research and development and promotion of exports, as well as for cooperative agreements and joint ventures, Spanish and international, involving both industrial production and technology transfers. In 1984 Telefónica celebrated its 60th anniversary by adopting a new logo, ten dots arranged in the shape of a T within a circle. When in June 1985 the Compañía Telefonica became the first Spanish company to be listed on the London Stock Exchange, it was able to state that in the previous 20 years it had increased the number of telephone lines in service more than sixfold and the telephone penetration per capita more than fivefold. Spain, with 13 million telephones— 35 per hundred inhabitants—and 8 million lines installed, had the ninth-largest network in the world.

In 1986 Luis Solana reaffirmed the company’s international orientation, announcing initiatives that included strategic agreements and joint ventures with American Telephone and Telegraph (AT&T) Technologies Inc. of the United States for ATT Microelectrica España—application-specific integrated circuits, 70% to 80% for export; SysScan of Norway for Maptel—digital mapping; British Aerospace, Olivetti, Brown Boveri, Philips, Saab-Scania, and Telfin for European Silicon Structures ES2—integrated circuits; and Fujitsu of Japan for Fujitsu España—DP hardware and software. Through the late 1980s, profits and development continued their upward trend. World financial markets were opening up to Telefónica, which has shares quoted in Europe, the United States, and Japan. In 1988 Telefónica increased the number of seasonal telephone booths—booths installed at resorts and in population centers during tourist seasons to meet increased telephone traffic—and prepared for the introduction of cardphones. In that same year, steps were taken to reverse the decline in the quality and efficiency of the telephone service arising from failure to keep pace with the surge in demand—there was 2% average growth in demand in the 1970s, rising to 12% in 1989. Telefónica invested in new ventures, including the pan-European company Locstar and Geostar (U.S.), set up to develop radio-paging via satellite in their respective continents. The first Spanish-Soviet enterprise was set up to produce telephones of Spanish design. International cooperation agreements were signed with other public networks operators, including France Telecom, British Telecom, STET of Italy, and, in the United States, NYNEX, Bell Atlantic, Ameritech, and Southwestern Bell.

The year 1989, under the chairmanship of Cándido Velazquez, formerly head of the Spanish state-owned tobacco industry and the successor of Luis Solana in January, brought improved service quality, management restructuring (decentralization), and investment in the urgently needed expansion of the network infrastructure. The company set Pta582 billion aside for investment, 62.7% more than in 1988. Telefónica Servicios (TS-1) was created to provide VANS (value-added network services), including radiopaging, electronic mail, voice mail, electronic data interchange, Videotext, and international corporate communications. Telefonica installed nearly 1.5 million telephone lines in 1989, more than 87% of them digital. Spain now had over 15 million telephones. The waiting list had been reduced under Cándido Velazquez, but it still stood at 600,000 at the end of 1989. At 30 lines per 100 inhabitants, Spain had a lower level of telephone service penetration than any other European Economic Community member. Telefonica’s good financial performance culminated in 1989 in a 16% increase in annual revenue to Pta703 billion (US$5.1 billion) and an 8% increase in profits to Pta68.5 billion.

Telefonica has ensured a strong hold over its supplies of telecommunications equipment, with an interest in Spain’s largest manufacturers of télécoms hardware, a 21.14% share in Alcatel Standard Electrica S.A. and 12% in Amper S.A., the main Spanish manufacturer of telecommunications terminals. Telefonica’s Plan Industrial de Compras (PIC) puts a severe limit on imports, thus protecting its native suppliers, which are largely its own subsidiaries.

Because of the government’s controlling interest, Telefonica’s policies have always been closely linked with those of the state, and its strategies have been influenced by national unemployment and inflation figures. Government restrictions have been evident in staffing policy—the company is obliged to maintain a larger work force than it otherwise would—and in the fixing of telephone tariffs where, until recently, there was a constant cross-subsidy from international calls to local ones. The latter were traditionally very cheap by European standards, with some private domestic subscribers never exceeding their allowance of free calls and paying only the rental charge. Local tariffs have been raised over recent years, by 14% in 1990, but such increases require government approval. Governmental trends have also had an effect on the company’s funding, investment, and marketing policy. Telefonica has traditionally been able to rely on the Spanish Bourses for a large part of its funding, but until LOT it was inhibited from raising capital abroad by government policy, which also constrained exports. Telefonica’s tax liabilities are met by a government levy, based on its net profits and is usually a set minimum of 6% of total revenue.

Until the late 1960s the company had left most of its research to its main supplier, SESA. Once properly started, however, Telefonica’s research and development took off, and by 1971 was employing about 100 people in this area. In 1989 Telefonica, with the participation of Pacific Telesis and AT&T’s Bell Communications Research, opened its new US$53 million research and development center. This center, occupying 21,000 square meters and employing, at the end of 1989, a staff of 500, had developed a second-generation packet-switching system and is engaged in projects on optical communication, speech technology, and various European Economic Community and European Space Agency projects. Throughout its history the company has been attentive to the quality and concerned for the welfare of its employees. In August 1924, the same month that its first contract with the government was authorized by royal decree, a company training department was set up. In 1989 over 43,000 of the 71,155 employees were given training or refresher courses, and over 55% of 1,930 new recruits were university graduates. Since 1925, employees have been offered the opportunity of becoming shareholders in the company.

As well as maintenance and extension of the basic telephone services, Telefonica’s activities in the 1990s cover data transmission; VANS (value-added network services), including radiopaging, electronic mail, electronic data interchange, Videotext, and international corporate communications; and satellite communications. There is also development of the supporting infrastructures—digitalization of transmission services, installation of optical fiber cables, extension of ISDN (integrated services digital network), and maintenance of Telefonica’s position among world leaders for submarine cable networks. In the early 1990s Telefónica was aimed at expansion into European and Latin American markets by acquisition. The telephone network will benefit from a program, due to be completed in 1992, to build three Hispasat satellites linking Spain, the United States, and Latin America. In Spain, Telefónica was making large-scale preparations to meet the extra calls on its telephone and telecommunications services that will be made in 1992. In that year Barcelona will host the Olympic Games, EXPO 92 will take place in Seville, and Madrid will be cultural capital of Europe.

In the early 1990s Telefonica’s future looked promising. The growth of the Spanish economy should continue to attract foreign investors and partners. Because it is still developing its basic network, Telefónica has the opportunity to adopt the latest technology and stands a good chance of leading the telecommunications field.

Principal Subsidiaries

Sistemas e Instalaciones de Telecomunicación S.A. (SINTEL); Telefonia y Finanzas S.A. (TELFISA); Telecomunicaciones Marinas S.A. (TEMASA); Compañía Española de Tecnología S.A. (COMET); Compañía Publicitaria Exclusivas Telefónicas S.A. (CETESA) (97.33%); Seguros de Vida y Pensiones Antares S.A.; Cabinas Telefónicas S.A. (CABITEL); Control Electrónico Integrado S.A. (THM) (80.25%); Teleinformática y Comunicaciones S.A. (TELYCO); Telefónica North America Inc. (USA); Casiopeia Reaseguradora S.A.; TS-1 Telefónica de Servicios S.A.; Telefónica Investigación y Desarrollo S.A. (TIDSA); Telefónica Internacional de España S.A.; Servicios de Teledistribución S.A. (99.14%); ENTEL S.A.; Playa de Madrid S.A.; Fujitsu España S.A. (40%); Alcatel Standard Electrica S.A. (21.14%); Hispasat S.A. (25%); Telettra S.p.A. (Italy, 10%).