Telefónica’s Upcoming ERE: A Shift in Workforce Dynamics
Telefónica is set to announce an Employment Regulation Document (ERE) today, targeting 6,000 to 7,000 employees, which constitutes 24%-28% of its workforce in Spain. After negotiations, this number may be adjusted downward to approximately 4,000 layoffs. This marks a staggering reduction from the 67,000 employees recorded in 1997, suggesting a decline of over 70% in just thirty years.
The Implications of this Strategy
This significant workforce reduction is a direct response to changes in the telecommunications landscape. Companies in the sector have invested heavily in infrastructure, such as 5G and fiber optics, yet they find themselves unable to increase prices. As a consequence, many firms are forced to downsize their staff to stabilize their finances.
While Telefónica invests substantially in updating its networks, platforms like WhatsApp, Netflix, and YouTube profit immensely without contributing significantly to network costs. This ongoing issue has plagued the telecommunications sector for years.
The Political Context
The ERE has complex political ramifications:
- The Spanish State owns 10% of Telefónica after investing €2.285 billion in 2024, appointing Marc Murtra as president in early 2025.
- Murtra is now implementing a plan that includes massive layoffs indirectly funded by taxpayers through the ‘Telephone Clause,’ which mandates Telefónica to reimburse unemployment benefits.
The paradox is stark: the government, as the principal shareholder, facilitates layoffs while publicly criticizing similar actions in profitable businesses.
Financial Figures and Projections
Historically, each layoff in past EREs has cost about €380,000 on average. If this trend continues, the layoffs could cost Telefónica between €1.5 billion and €2 billion in 2025, following an additional loss of €1.08 billion from selling Latin American subsidiaries. The strategy aims to cleanse the balance sheet in 2026, concentrating financial pain into a single year.
- Expected annual savings: Between €300 million and €500 million, depending on final agreements.
- Strategic plan objective: Reduce operating costs by €3 billion by 2030.
- Current staff in Spain: 25,000 employees, including 18,305 in the three main subsidiaries.
Concerns Over Debt and Market Valuation
Labor unions argue that Telefónica’s issues are rooted in its nearly €30 billion debt and stock market undervaluation, rather than excessive payroll costs. An ERE fails to address short-term debt or boost share prices, which fell 16% post-announcement of its strategic plan.
Pre-retirement for workers costs between €450,000 and €500,000 in the sector, causing any savings to materialize only after several years.
Historical Context and Future Outlook
Telefónica is no stranger to workforce cuts, having implemented EREs every two to three years since 1997. The most recent instance in 2024 impacted 3,421 workers, focusing on those born in 1968. The upcoming ERE is expected to extend its reach to employees born in 1969, 1970, 1971, and possibly 1972.
This new wave of layoffs is part of Murtra’s strategic plan Transform & Grow, which involves halving dividends, reducing debt, generating cash, and contemplating potential acquisitions through capital increases. The overarching goal seems to be to sacrifice short-term stability for long-term sector consolidation.
Union Consensus and Management Actions
Labor unions, including UGT, CCOO, and Sumados-Fetico, have united to sign a social framework, indicating agreement on the necessity of the layoffs while negotiating conditions. Notably, Murtra and CEO Emilio Gayo have shown confidence in the company’s future by purchasing shares despite the stock’s continuing decline.
The Bigger Picture
Telefónica’s current existential dilemma raises a critical question: Can a business model that heavily invests in infrastructure while failing to capture adequate value remain sustainable? European telecom companies have long demanded that major tech firms contribute more to infrastructure costs, with little progress seen.
As the ERE unfolds, the challenges facing Telefónica not only reflect internal corporate dynamics but also broader industry trends, underscoring the delicate balance between investment, sustainability, and profitability.