• Companies This is what the new Vodafone will be like in Spain: an "arsenal" for Lowi, promotional aggressiveness and adjustments to make 5,000 million euros profitable

Eamonn O'Hare is no newbie when it comes to shaking up the Spanish telecommunications market. The president of Zegona, which has bought Vodafone Spain for €5,000 million, has experience betting on the country. First it was Telecable, then Euskaltel. After the sale of the Basque operator to MásMóvil, he and Robert Samuelson, his partner and both former executives of Virgin Media in the United Kingdom, validated their thesis: the fragmented and always difficult telecommunications market had room for a different player, a company that would take advantage of the difficulties of other operators to buy, fix and sell them at huge profits. Now, Zegona is facing the biggest operation in its history. In the interview with Actualidad Económica, the first he has given since the purchase of Vodafone, O'Hare comes out to present the strategy of a project that he assures is long-term and has nothing to do with what a fund willing to chop up and sell the company in parts would do.

Why, among all the markets, have you opted for Spanish again? First of all, we love Spain [laughs]. We know this market very well, but the truth is that we have looked all over Europe. Although this is our third deal [after Telecable and Euskatel], we have analysed more than 100 potential acquisitions in the last eight years. Many of them have been outside Spain. It's no secret that, at some point, we had 15 potential trades, where we worked hard, and then five, where we worked super hard, but in the end it all comes down to knowing the market very well. You know your competition, the government, the regulator, the consumer, you understand the macroeconomic environment and how the business works... it has much less risk than going, for example, to Sweden, Greece or Germany, where you have to learn everything all over again. When we bought Telecable we were very clear that the three small cable companies with television would merge [R, Telecable and Euskaltel]. Then, we realised that Euskaltel was a great investment, with very good quality assets and, in fact, we reached the agreement with Vodafone because, at the time, there were negotiations between Euskaltel and Vodafone and that allowed us to get to know their business very well. We like the economic situation, we like politics. I know there are a lot of people who say it's crazy, but we think that, in any case, there is long-term stability in Spain. Sometimes there are movements that lead to an election, but in the long term it's an environment with a lot of very favourable elements, that's why we're back. Beyond valuation. Yes, we got a good deal. We sold Euskaltel a year and a half ago for about 10 times EBITDA, and we bought for less than four, but the multiples have also changed in recent years due to interest rates. This wasn't the main reason, the key is that Vodafone has a tremendous set of assets. We think the brand is really good, not only Vodafone, but also Lowi. The staff is very good, with one of the best management teams and we like their networks. They have invested heavily in 5G capacity and we like their fixed network, with gigabit capacity in 11 million homes and access through agreements with Orange and Telefonica to more than 90% of homes. And we also like the corporate business, which gives a third of the revenue. We've kept accounts for large companies before in the telecommunications sector. We like the segment, it is very well placed in the market in terms of quality, safety and integrity, that's why they have the second place in the market. Well, there are some problems in those businesses. That's why they've been able to buy it, right? [Laughs] Yes, but we don't believe that they are strategic, they come from the fact that it has not been managed in an effective way. We believe there is an opportunity to simplify the business, reduce complexity, and increase productivity. There's no doubt about that. Moving the company out of the complicated structure of the Vodafone group will breathe new life into the business and reduce its complexity significantly. That every decision doesn't have to go back and forth from London and the opinions of other units opens up a huge opportunity. We can make a much more consumer-oriented business.


What stage is the operation in right now? Has it been notified? Everything is signed, but there are three conditions that had to be met and two are missing. On the one hand, we need the authorisation of the Spanish Government's Foreign Investment Board, which I don't think is going to be a big problem. We've already got it with Telecable and Euskaltel, so we think it will go well, but it has a process and it still takes a month or two. And then there's something very bureaucratic, which is an authorization from the European Union on subsidies to foreign governments and we just have to make sure that we comply with that, which we don't think will be difficult. We expect to close it in the first quarter. What would be your top three priorities when you arrive? There's a lot to do. The most urgent thing is to be sure that the business is attractive to the consumer again, because it has been losing customers for three or four years. So my first priority is to keep these customers coming back to the brand and to Lowi. One of our ideas is to reinforce Lowi with 5G, which has just been added, and audiovisual services, with some OTT. So, the first thing to do is to strengthen Lowi's brand. The second thing is to invest in the technology business for companies because it has been flat for several years. Being number two in the market, we understand that there is an opportunity to grow and for that a little more investment is necessary. And the third is that we think customer service is a bit complex. We want it to be simpler and for the consumer to be able to interact digitally and acquire everything online and easily, we have to invest in that. Since the announcement of the deal, there has been a lot of talk about Lowi and not so much about the Vodafone brand strategy. What is your plan for Vodafone? We love the Vodafone brand, that's why we agreed to keep it for 10 years. We think it has a lot of power, especially on the business side, but you're right, you have to look for a strategy because in recent years it has lost some of its luster, after investing in football, leaving it and losing a lot of customers as a result. But what's their plan? There are a lot of things we can do with the brand in the consumer segment. For example, the network is only used at 15% to 20% capacity, there is a lot of capacity and we believe we can give much more speed to consumers using the Vodafone network. We see no reason not to give them a different price at a certain point, as Digi does on its network. We believe the network and brand are good assets, but they are not being used at full capacity. One of the biggest debates about the company is the future of the fixed network. There is the possibility of looking for a partner to upgrade the network and create a NetCo and even sell, how do you see it? First of all, people have talked about us as an aggressive fund. We're not, we're a listed company. That's very important. We have shareholders and some of them are Spanish. Like all listed companies, we will do what is best for our shareholders. This means that we will stay for the long haul. Secondly, there are a lot of rumors that we will be selling the business for companies. We're not going to do it. It is a key asset to our strategy. We will invest in the enterprise business, which is what you really need. We have absolutely no intention of selling, because that would be commercial and financial suicide. Q. Won't debt be a problem? A. We are in a very good financial situation, with leverage of 2.9 times EBITDA. We've done a great job with the rating agencies these last six months. I would be very disappointed if we didn't receive a rating around BB+, which is very strong, which means that our debt structure is also very strong. Our business is not to sell assets. Our strategy, in fact, is based on creating a company of very high quality and great assets, less complex and more productive. We want to invest. I'm comfortable telling you that we plan to invest €3 billion over the next four years. We want to do it because we're only going to make the business grow and be more profitable if we also make it bigger. It's good for the company and the Spaniards. We're not in 'sale mode', we're in 'investment mode'. Sounds like a long-term plan. Our plan is to invest for the long term. We are a listed company and we have Spanish shareholders as well. People ask us 'what's the plan to get out of the company?' There isn't. It would not be unreasonable to think that, in three, four or five years, we would move our share price to Spain, if we increase our base of Spanish investors. We wish there was more to create an investment story and an industrial project that would make Vodafone Spain bigger and more valuable.


How does the cable network fit in? Vodafone's cable is in many markets around the world, such as the UK, and enables speeds of one gigabit. The problem is that it is underutilized, with only 15% or 20% of its capacity. We need more customers on that network to have a return on investment. It's like running a hotel with only 20% of the rooms occupied, it doesn't make money. We have to get more customers. Telefónica gets 20% of its business from the wholesale market, Orange, the same, while Vodafone only 4%, because, being part of a more complex group, it was decided five years ago that they were not going to offer their network in this market. We don't think in the same way, we have to use it to make it more productive and its use gives benefits. On the mobile network, they do have a large wholesale customer which is Finetwork. The other day, your CEO was upset that he didn't get his call, and his contract expires in the spring. We have not completed the business transfer. The process takes months and there are many rules to follow. We can't do things on behalf of Vodafone, it would be 'firing the gun' in legal jargon. Until we take ownership of the business, we won't be able to talk to our partners. When we do, we will contact them very quickly. Do you see other companies as potential customers? I can't give you a very specific list, but there is a very obvious one. Digi is paying €350 million a year to Telefonica and the figure is going up very fast. The contract has two years left and we'll see what we can do at that point. We will be very active. Speaking of Digi. The Spanish market is consolidating on several fronts, how does that affect your business outlook? The merger into Orange and MásMóvil is most likely going to happen. It has a couple of very good things for the market and some negatives. One of the positive points is that we will go from four to three players that control 90% of the market. That's very positive. Then, MásMóvil in the last ten years has been a very aggressive competitor that has stolen a lot of customers, but if they merge with Orange, their behavior is going to change because they will already have a very high customer base, which will lead them to be less aggressive. On the other hand, it seems almost certain that Brussels will implement remedies for Digi or another actor and they may be somewhat more aggressive. For us, the important thing is that our plan is long-term and consists of making Vodafone Spain bigger and more valuable and it doesn't matter if the merger is done or not. But it will change the competitive landscape for you as well. There will be good things and bad things, I've already told you what our plan looks like, it's independent of what happens in the next few years, but we'll also deal with that as we always have. It's part of the business. As part of this business plan is the arrival of José María García, former CEO of Euskaltel, to lead the firm. How are the negotiations with MásMóvil going? This is not a problem. He will be available to be our CEO from the first day we arrive at the company. There are several processes that could leave talent available for Vodafone, such as the departures at Telefónica or the merger of Orange and MásMóvil. Is it an opportunity? We think the Vodafone team is very good, the staff is a great asset. We are very focused on creating a stable environment like the one that exists now with the unions and the collective agreement. But yes, if there are opportunities to increase our talent because there are interesting people in the market, we just playIt is to our advantage. As you mentioned the workers, the document sent to the stock exchange pointed to an excess of staff and a plan for selective redundancies. Could you elaborate? Not really. There's been a lot of talk about that, but for us it's not one of the big problems of the business, the workforce is an asset. There are a lot of things that the squad is doing now that we need to talk about how to do them more productively, but it's a high-quality group and we want to invest in it. There are other actions to be taken to improve cash flows that we want to carry out rather than letting employees out. We have mentioned it: getting more customers, improving the wholesale percentage, reducing the cost of customer acquisition, reducing low-quality debt, which accounts for 3% of revenues, almost 80 million euros. That's a lot of money. There are many opportunities to grow the business. Can you expect more aggressive offers from you to grow in customers? Without going into detail about our promotional strategy, we are going to invest in the customers, the network and the business. We want there to be a more positive and simple customer experience. We are also going to reduce costs, such as the more than 100 million spent on technological infrastructure. We will simplify it and invest the savings in the customer. We want to make a more valuable product, with more elements, more speed, a better television. The message is that we are a listed company with a long-term plan and customer focus. Over the past few years, telcos have launched many non-connectivity services such as energy in the case of Vodafone. Are they part of Zegona's proposal? I think we need to go back to basics. We believe there are key products: telephony, broadband, television, mobile, and enterprise. We want to focus on those key legs of the business and not get distracted by other issues like security or other peripheral issues. That's what we're going to focus on these two and three years, investing in these five areas and not getting distracted. A return to basics. You have also talked about reducing the payment for TV content that Vodafone used to pay, how do you plan to do it in such a competitive market? I'm not going to go into the details, but one of the things that will happen is that now Vodafone employees will be able to do a lot of things that they couldn't do within the group. Our DNA will be much more entrepreneurial, customer-centric and agile. It would be a simple business where the strings attached will be removed. Previously, there was a complicated relationship in the group with Germany and the United Kingdom. Not now. We will treat Telefonica like any other provider and ensure that we have the best quality-price agreements with suppliers. We don't want to cut service, but we don't want to overpay either. We're going to be very assertive about that over the next 12 months. Is broadcasting football on the table or is it still too expensive? No, we're not going back to the classic way of broadcasting LaLiga. It's a very difficult and complex environment. The debate over whether Vodafone should have stayed with LaLiga or not is now history. However, it does not mean that our customers cannot access other football or in another way. Our package includes the second division and there are many innovations among OTTs in the market, I'll leave it ah