“Zegona's management team has deep knowledge of the Spanish telecommunications market and a proven track record in executing telecommunications transactions, complementing the experienced management team of Vodafone Spain. Zegona has been centrally involved in the operation of multiple telecommunications businesses, enhancing the commercial profile while generating returns to shareholders.” Direct and without half measures. With this paragraph, included in the official communication of the purchase of Vodafone Spain for 5,000 million euros, the British investment fund Zegona explained the keys to its return to the Spanish market. Repeat the moves it already made in 2015 with the purchase of the Asturian operator Telecable, which it merged with Euskaltel in 2017.
To this end, it proposes José Miguel García as leader of its operation in Vodafone Spain, a history of the telecommunications sector, founder of Jazztel and who was already in charge of Euskatel before its sale to MásMóvil in 2021. “Beyond the details that we may know later, it is clear that they are going for it. To maximize the value of the company in any way possible. García's choice says it all. “He has shown that he is an expert in generating aggressive market strategies and growing the companies in which he has been: Jazztel, Euskaltel,… with that alone he has already put all competitors on guard,” explain sources in the sector.
An aggressiveness that has even led him to propose an option that hardly anyone anticipated in the Spanish market. The possibility of derailing what is, until now, the star operation: the merger between Orange and MásMóvil. In his communication, Zegona has expressed his interest in merging Vodafone and MásMóvil in case Brussels does not give its approval. He has valued the synergies of the merger at 450 million euros and says he wants to take advantage of them if the opportunity arises.
“The entire sector is waiting for Brussels to announce the remedies (assets that Orange and MásMóvil must get rid of to obtain free rein). I don't think that this merger would fail in many pools. But of course, Vodafone has been in those meetings and has more information. That is why his announcement undoubtedly generates unrest,” say the sources consulted.
“Another option is that the purchase of Vodafone accelerates Brussels' decision, to ensure that the new group can begin to operate against a competitor that is strengthening,” says Rubén Blanco, head of telecommunications and media at the consulting firm NNT Data for Spain. and Latin America.
Be that as it may, Zegona is back in Spain and is ready to repeat the move it already made when it bought the Asturian operator Telecable and the Basque operator Euskaltel. Zegona herself remembers those successes of hers in her official communication to the London Stock Exchange. Between 2015 and 2021, the entry and exit dates of its previous foray into the Spanish market, Zegona generated an 87% return on net invested capital for its shareholders.
How do you intend to do this with Vodafone, the company that has emerged the most penalized from the low cost war that has been waged in Spain in recent decades? “The most important thing is that the new management is going to focus and concentrate on the needs of the local market, Spain. Something that the Vodafone Group had not achieved in recent years. We are going to start to see very aggressive offers in the residential market, where they are very strong and where they have agreed to maintain the Vodafone brand, which is very powerful. Despite the weakness of recent years, it is still the third company in the sector,” explains Rubén Blanco.
A third position that gives it 22% of the mobile market, five percentage points behind the first operator, which is Telefónica. After the Orange-MásMóvil merger, which would rise to first place with almost 43%, it would also have a third place, but much further away from the leader.
To avoid this, Zegona is willing to act on various fronts. The first, the high-value residential market, the world of convergence. In the last year, Spanish operators had managed to stop the price war and, thanks to the multiplication of added services (insurance, alarms, loans...), also stop the continuous changes of companies, so common for clients in Spain.
Now, the new Vodafone is going to strongly attack this market. Stated objective: “Increase the market share of the value segment of the Spanish market.” Your assets to achieve it? “It is the only actor in Spain that integrates all the main OTT platforms, including Disney, Amazon Prime, HBO and Netflix,” he says in his official statement.
“The fund has assured that it will make more offers with added services, to increase customer loyalty, reduce churn and increase profit per customer (ARPU),” explains Blanco.
The low-cost market is going to get a twist from Lowi, one of Vodafone's brands. “Let Digi prepare,” they point out from another company in the sector. Digi, the fifth operator in Spain, has been one of the most aggressive brands in terms of offers. The only one that last year did not join the general increase in prices, the one that seeks to expand its low-cost market with fiber and television, to also gain weight in the world of convergence, and the one that has achieved the most clients in what it's this year
But Vodafone could also be interested in an agreement with Digi in another area and open access to its fiber. Because another of the strategies that it is going to develop is to put to “work” all the fiber that it bought from ONO, in 2014, for 7,200 million (remember that now Zegona will pay 5,000 million for the entire company). Of that entire fiber network, barely a quarter is in operation, as acknowledged by Zegona's CEO, Eamonn O'Hare, at a press conference last Tuesday.
Its wholesale business barely contributes 4% to income. “Until now, Vodafone had never left its networks for virtual operators. That has been one of their big mistakes,” says an expert in telecommunications regulation. Doing so can change positions, especially in the residential market. “If you offer the network cheaper than Telefónica or Orange, there may be virtual operators that change when their contracts allow it,” they venture into the sector. Digi could be one of them, the Romanian operator could reconsider stopping investment in its own fiber network and reaching an agreement with Zegona.
“The Vodafone network, originally from ONO, is somewhat old, updating it to make it competitive would require between 300 and 600 million,” they point out in the sector. A lot for Zegona in this operation, but less than launching a new network as Digi is doing now. And together they will have more strength in the deployment of 5G, say consulted experts.
It is not the only option. There are operators specialized in networks like Onivia, for example, for whom buying Vodafone's excess network would be interesting. In fact it is, because they were already talking about it before Zegona's entry. Now, his CEO, O'Hare, on Tuesday ruled out his sale. He wants to make it profitable, but from the sector a sale is seen as the best formula to obtain the financing he needs to cover the 5,000 million without burdening himself with excessive debt.
“It is clear that it needs cash, among other things because it seems that a possible merger with Finetwork is also on the market. If it manages to reduce the debt to 2,500 or 3,000 million, it will be a success,” financial sources point out.
A whole range of possible movements for which we will have to wait until 2024, when Zegona receives authorization from the Spanish authorities to begin operating.
