Spanish Telecommunications: Telefnica UK Limited - Case Study Example

Spanish Telecommunications: Telefónica UK Limited Introduction The acquisition of the O2 by the by Telefnica, a Spanish telecommunications had great lessons and impacts learnt from the process. My report based on analysis of an organizational development situation takes into account the reasons for the change and the factors. These factors have influenced process of implementation and progress of the acquisition. The acquisition of the O2 lead to the eventual creation of the Telefónica UK Limited which is the trading brand of the O2 as it depended into the business associated with telecommunications, financial services and internet majorly in the United Kingdom. Afterwards the company assumed the role and rank of number being the largest mobile and telecommunications service provider in the United Kingdom immediately after EE Limited which has its headquarters in slough. The company now brags of 21,580 as according to 2013 and a total of £2.973 billion revenue as according to 2010 valuation (Tarrant, 1978). The company was initially founded as a cellnet company in the year 1985 by John Carrington and later. In the highlight of the systematic changes of the company which ended in the eventual acquisition by the Spanish company Telefnica extreme relevance is placed on the background to the firm, issues the firm needs to tackle, Proposed Change , Barriers and risks to change and ultimately summary or conclusion which highly elaborates on the best exposure of the company. O2 was designed and formed from a joint venture of two companies BT Group and Securicor which contributed a 60: 40 capital on the commencement of the its operations in 1985 trading as cellnet. Furthermore, in 1999 BT group assumed 40% of belonging to the Securicor's thus prompting the rebranding of the cellnet into BT Cellnet. The company eventually launched the initial general packet radio service in 2000 in Germany, Netherlands, and Ireland and introduced O2 the new brand. The acquisition of the O2 came after an agreement signed in 2005, which announced that that the Spanish telecommunications company Telefónica had entered into a deal aimed at acquiring O2. The deal elaborated a financial price of close to £18 billion and the deal outlined that Telefónica decided to retain the "O2 and also companies main headquarter in UK (Greiner & Schein 1988). After entailed discussions and negotiations, the Telefonica SA tef -0.13% approved the bid to buy the British cellphone operator for pound; 17.7 billion which translates to $31.4 billion or even euro; 26 billion. The dealing marks the greater and wider appetite for expansion on Telefonica which has been strategizing on expanding in the Europe area. After conquering the Latin America market the company then decided to focus on widening its roots in the European market. The approved cash agreement, at virtually 200 pence per share, equates to a 22% initial premium to O2's share value price as has been nearly unchanging for quite some time. The deal put an end to the elongated years of speculations for O2 regarding future which has been the star performer in the entire European mobile telecoms segment spanning a period of past three years. The move hampered the efforts of massive German telecoms Deutsche Telekom AG and efforts of the main Dutch’s current operator named KPN NV in the immediate corresponding following two years. Proposed Change (Empire Building Theory) The acquisition of the O2 by the by Telefnica was due to empire Building Theory as it was Planned and well implemented under control of managers whose main desire was to maximize their own utility in comparison to that of shareholders value. The company was widening its territorial coverage in Europe. The proposed deal empowers Telefonica l to acquire all O2’s assets that mainly found in the U.K, Ireland and Germany. The typical theory behind the acquisition of O2 by the larger Telefonica is the empire-building desire. The company expects this move to create a competitive edge for furthering anticompetitive activities and management-entrenchment. Similar to the established theory an inefficient plant is usually taken up by an efficient company survive which resembles the exact financial position of O2 and Telefonica states. The firm shall also face hurdles as it has always been rumored since bidders as Telefonica usually do not operate in the new markets geographical regions. Telefonica is a Madrid-based firm and is the globe's fifth-largest telecommunications firm according to the market value. The company has always been wishing for acquisition in Europe so at to expand its tentacles. The European market always been experiencing mergers and acquisition for a year long period in the telecommunications industry as Telefonica had in the past approached KPN NV which belongs to the Netherlands for a merger or acquisition. The side of KPN was quite reluctant on the continuation of the deal process was thus pushing the Madrid company to focus its sights on O2 (Coyle, 2000). Telefonica is an established firm with roots in several countries from which it has invest most in the brazil, Spain, Andean region , southern cone, northern region and morocco in varying portions (Abdelaal, 2013). The firm is huge and has great financial and assets base as compared to most communication companies. On contrary, O2 has its deep roots in U.K., Germany and Ireland. The total worth of the Telefonica is 86.5 million while the worth of the O2 is only 24.6 million . the financial difference exposes O2 into great financial shocks especially with regards to tackling eminent debts as witnessed in the past years of business in the region (Glasl, 1999,p90). Background to the firm O2 shares a background of having been spun from BT Group PLC which traditionally has been the United Kingdom's largest conventional main phone-service company as for instance in the 2001. The company bases from Slough, England and has virtually 15,000 employees. The company has a customer base of majorly 24.6 million mobile-phone clients mainly in the U.K., Germany and Ireland. Most of the European telecommunication suffered great debts which they incurred mainly in the late 1990s, this placed them in a precarious state thus compelling the many European the larger ones for instance Telefonica to sign up r deals which made the smaller companies main acquisition targets in the process . The main push for increased acquisition activities in European market has always been the cause of the multibillion-euro deals mainly in the Netherlands, Spain, the Czech Republic, Austria and Italy. Most of the private-equity companies are in the midst of trying to nearly $12 billion deal which aims at buying TDC which is the Denmark’s largest carrier (Sudarsanam, 1998). TDC which is the Denmark’s largest carrier has branches in brags of huge and massive businesses mainly in Switzerland, Germany and Poland. To respond to extreme financial restrictions most of Europe's huge established, fixed-line service firms for instance France Telecom SA which is ft +1.27% and Telecom Italia which resembles ti -0.18% SpA are currently close knitting or pulling their wireless and other fixed businesses closely together. Other companies like France Telecom in an astonishing move have always encroached unswervingly on Telefonica's territory, spending close to euro 6.4 billion mainly for the Spanish mobile-phone firm operating by the brand name Amena. Normally acquiring cellphone operators has attracted many buyers since fixed-line firms have concentrated competition and innovative technology for instance telephone calls mainly in the Internet have virtually overturned the traditional telephone calls to assume the a low-margin. Most of the upstart companies presenting enormously low-cost voice calls have dramatically pushed the prices comparatively down in the current cases scenario. The addition of the UK’s firm in the Telefonica's territory means that it currently have more than close to 90 million clients majorly in 15 countries. Telefonica' has an established market from which it derives most of its income mainly representing about half of its sale entirely from Spain and most of the wider Latin America market (Greiner & Schein 1988, p57). Barriers and risks to change The main barriers and eminent risks common to mergers are typically Market Saturation, Increased Debt, Conflicting Objectives, Redundancy and Culture Clashes but in this kind of merger the greatest change or eminent risk was undertaking business in new environment with different culture and language. Earlier the company has always conducted business in the localities of Spanish speaking countries and then it had plans to dominate the European market. The UK market also had giant competitors which obviously meant that the company would have hard times trying to outdo the established companies. Companies also have personalities which resemble a culture that intensely permeates the complete business which may usually prompt challenges. It was eminent that acquisition of a company that has a technique of undertaking their issues but may be conflicting the acquirers system of doing things this was expected to create conflicts in the management style of the incoming company. But the telefonica chose to have the management and headquarters of the O2 company remain unchanged. This was a sure way to ensure that most of the issues were unchanged and moving on well as expected (Bhattacharyya, 2006). O2 has always provided varied services which includes alongside A mobile telephone service the firm avails fixed line services and other entailed home broadband services. The firm had initially acquired Be Un Limited which is an internet service provider mainly in the UK geographical region for a cost of nearly £50 million in June 2006. After O2 acquired the firm it also retained the BE brand and also launched a distinct broad-brand service in 2007. The newly launched broadband was mainly undertaken on the Be network and furthermore , O2 announced 2011 another different broadband entailing the fibre optic broadband service which was designed to equally compete with the BT Infinity placed product. The technology entailed in this process was called the FTTC technology. Later around march BSky entered into a deal that saw it purchase the fixed telephone line and other associated broadband business belonging to Telefónica UK which was trading under brand of the O2 and also BE (Khan, 2008). The firm later consented to paying of £180 million originally and subsequently followed by a supplementary £20 million virtually all the clients had been shifted to the Sky's earlier existent business. And the sale was later approved by the regulatory board in 2013. The O2 has also initiated a payment system that it had been trialling from Near Field Communication for the enhanced payment system as can be remembered from 2007. These searches has forced O2 into discussions with huge retailers including Tesco and even the W. H. Smith, for the eventual deployment of the essential electronic point of sale gadgets with the involvement of the handset designers and manufacturers like Apple and even Samsung. This has been the bid of the company to provide and enable NFC equipment or technology on all prospective devices (Ryan & Deci, 2001, p135). Another surprising issue was the renaming of the BT Cellnet consumer brand to s renamed O2 that is normally a symbol of the unbound oxygen and the process was supervised by the Lambie-Nairn design agency. These design was to mean that the company was offering services that were very essential just like oxygen and the move brought the design of the company logo and the all the entrenched graphics or trademarks. In which air bubbles was applied for use . Following the designing process, the O2 typical bubbles were photographed by London origin photographer called Jonathan Knowles and thus adopted the going slogan "See what you can do". Back in the 2002, the company again demerged from the BT Cellnet thus compelling the shift in the slogan to “It's your O2" .This was in 2006 but the firm again came up with another typical slogan in 2008 reading that "We’re better, connected" which was part and parcel of the a brand refresh that nearly cost £5 million (Kouzes & Posner, 2012). The company, O2 has been sponsoring the England national rugby team as part of the public responsibility. The firm has also been active in other sector economic sector having unveiled its mobile video service which allowed customers to mainly download or even stream video content associated to the 2003 Rugby sports for the World Cup. Back in 2005, the rebranded Telefónica O2 improved their influence and involvement in rugby union, creating new deals with the England rugby team. The Telefónica O2 has been sponsoring arsenal club for quite some time in terms of providing t-shirts. The company signing deal with arsenal saw its optimum when in 2005 when Telefónica O2 become the clubs main Mobile Communications business Partner and the firm has also been sponsoring the O 2 wireless in festivals mainly in London (Argyris, 1977, p345) . Issues the firm needs to tackle There are several plans the Telefonica as a firm has to place in its acquired O2 in the UK and Germany companies (Shrivastava, Pandey & Vidyarthi, 2007). Considering that the countries has huge established telephone services providers that company has to add more investments in the regions to ensure increased perception. The larger investment would mean larger income to the company and consequently large customer satisfaction. The UK and Germany market is partially different market as compared to Brazil market and refinement of the services would mean great deal to the firm (Ryan & Deci, 2001, p67). The Telefonica initially had close first-half proceeds of mainly euro17.4 billion and subsequent net profit dues of virtually euro 1.8 billion in annual turnovers. The future remains unclear for the Telefonica as it will provide mainly geographic diversity to the Europe. The advancement of Telefonica in the European regional market places widens its perception and roots in the regional market and this act boosts the size. The move also widens its very vital move and important for cost saving model through enhancement of the sales and outlined distribution (Cooper & Finkelstein, 2014). There is also an outlined advantage coming into to process as bigger cellphone firms avail huge payments to the manufacturers less for the handsets that they normally sell at last to the clients. This is model is highly felt in the cases where , for instance , following the acquisition of Bell South's Latin American main cellular assets Móviles subsequently reduced by nearly 35% the mean cost of handsets. This was mainly due to the greater perceived clout in that geographical market. Following the second quarter, the entire Móviles's accumulated net profit went up by close to 4.5% to €495.7 million. This income growth came from the precedent year sales of euro; 4.1 billion. The acquisition of O2 has been in process for several months. The acquisition of O2 has been tried in earlier case by the companies like KPN and Deutsche Telekom earlier tried to formulate a sketch to buying O2 earlier. It was not successful as the deal did not go through. The involved two companies were compelled b y U.K. entailed takeover regulators to hold their plans for nearly six months in which it would be allowed to eventually revisit the scheme and successfully make a deserved counterbid in case Telefonica re-ignited or launched an official offer (Pathak, 2007). The entry of the Telefonica into the market meets a group of highly competitive market sector having mainly four major players. This sector mainly includes Vodafone Group vod -0.14% PLC based in the U.K which is also the world’s largest cellphone operator in terms sales categorization. Another player is the Orange which is mainly owned by FranceTélécom and additionally, the O2 and lastly the Deutsche Telekom's which the T-Mobile (Ryan & Deci, 2001). There are other firms like Hutchison Whampoa Ltd which are currently bringing new technologies (3G) in the market that enables users to undertake very complex undertakings in online like watching of video online and facilitation of browsing. Comparatively, o2 had been performing quite well in terms of competition. The company expects huge growth in UK and additionally very heartening profit margin mainly in the German market than it had been always expected in the earlier scenarios. The company anticipates huge growth especially noting. There was rapid growth in subscribers which pushed its client base to beyond 15 million for initial time in history which excludes 750,000 clients who are currently using the Tesco Mobile service (Argyris, 1977, p342). In conclusion, the move of the Spanish telecommunication company to take over O2 which is based in UK is mainly an empire expansion strategy which is inhibited by main contestants and competitors in the region. The growth of the Spanish firm in the region is tensely under risk due to high rates of competition in the region. 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