Eva Castillo: We are supporting young talent and we are starting
a programme for start-ups in Europe. We are promoting
leadership and the entrepreneurial spirit
It’s tempting to ask a long-term banker who’s just become CEO of a large telecoms operator if she’s shocked by the state of the industry. But Eva Castillo, CEO of Telefónica Europe, knew too much about the company before she took on the new role in at the beginning of October 2012.
“I’ve been on the board of Telefónica since 2008,” she says. And before that, as a banker at Spanish broker Beta Capital, followed by Goldman Sachs and then Merrill Lynch for more than 20 years, she had plenty of time to learn not just about Telefónica and the rest of telecoms.
She has accepted her new role enthusiastically. “When I was offered the job I couldn’t reject it. I took it immediately, and it’s been fantastic.”
Castillo’s appointment was prompted by the retirement last year of Julio Linares as chief operating officer, after 40 years with the company. Linares is remaining as a non-executive director.
She recognises that it’s an advantage that she had been on the board for five years when she was asked to take on the new role. “I knew the company. I knew the executives. These were advantages. I could call people by their name.” And not just people at the very top of the hierarchy: “I like to go down three, four or five levels and find new issues to discuss.”
Indeed, she had worked for Telefónica’s chairman, César Alierta, before. He ran Beta Capital until 1996, when he sold it to a Dutch bank, and he joined Telefónica in 2000.
Until she became CEO Castillo had been in the banking industry since she graduated, having studied business, economics and law at the Universidad Pontificia Comillas in Madrid. She started at Beta Capital in the sales and equity research department. “This was a broker with international investments, and Telefónica was number one by market capitalisation in Spain — and it was nothing like the size of the company it is today.”
After five years, in 1992, she moved to Goldman Sachs in London. “I was truly Spanish but becoming truly European and covering all the other cultures.” It was a good time to be a Spanish banker in the capital of European finance.
“At that time the Spanish market was starting to develop through IPOs,” she says. “I took advantage of the explosion of the Spanish market in London, and Telefónica was one of those companies you had to follow. I always felt very close to Telefónica and the market.”
Another five years, another move — this time partly across the City of London to Merrill Lynch, though she also worked for the bank in Spain. “I spent 13 years back and forth between London and Madrid. London is my second home. It is very close to my heart.”
Head of equity markets
At Merrill Lynch, where she was at first head of equity markets for Spain and Portugal, “I started to follow Telefónica from an industry perspective”, she recalls. Within two years she became country manager for Spain and Portugal and in the following year CEO of Merrill Lynch Capital Markets España.
It was an active time for Telefónica, which was beginning its transition from Spanish incumbent with few interests outside its borders to becoming one of the largest operators in the world. The company, formerly owned by the Spanish government, was fully privatised in 1997.
In 2000 the company made one of its first moves, buying Dutch television production company Endemol — known best for its Big Brother programmes — for €5.5 billion.
Telefónica had already had a South American business since the late 1980s, in Chile, but in the early years of this century it started expanding: the biggest move coming in 2004 with the purchase of BellSouth’s wireless services across the continent in a $9.5 billion deal. BellSouth was pulling out of its non-US interests; later it merged with another US operator SBC and then took over long-distance company AT&T to become today’s giant AT&T.
Not satisfied with its expansion into South America, Telefónica decided to move out of Spain and north of the Pyrenees into the rest of Europe, buying UK-based mobile operator O2 in 2005 for £17.7 billion in a deal that also brought businesses in Germany and Ireland. The same year it bought Ceský Telecom, the incumbent of the Czech Republic, and won a bid to provide mobile services in Slovakia.
All of these European operations outside Spain run under the O2 brand. In Spain, the company uses the Movistar brand, also common in South America. Until Castillo took up her new position, Spain and the rest of Europe were also in separate divisions. For the first time Telefónica has unified its European business under Castillo’s control. That dual branding is unlikely to change, she says.
While all this expansion was going on Castillo watched Telefónica from her position in Merrill Lynch.
As the person running the bank’s capital markets in Spain, and then president of Merrill Lynch Spain from 2003, it wasn’t appropriate for her to have a role on the board of the operator. That changed in late 2007 when the bank promoted her to head its wealth management operation, covering Europe, the Middle East and Africa. “After a few months Telefónica asked me to join the board,” she says. “There was no longer any conflict. Of course, I couldn’t reject the offer.”
The evolution has been “very interesting”, she smiles: not many people have had the chance to do so much multitasking”. At first, though, her role on the Telefónica board was “quite restricted”, but since 2010 she was allowed by Merrill Lynch to join the operator’s committees looking after strategy, quality and regulatory affairs.
In the past year or so Telefónica has reorganised itself considerably. Not only has its customer operations in Spain been put under the same management — Castillo’s — as those of the rest of Europe for the first time, but two new units have been created. One, Telefónica Global Resources, looks after networks, IT and procurement.
Another is Telefónica Digital, the home of some of the new services that will transform telecoms — including cloud computing, mobile advertising, machine-to-machine and e-health, as well as of new businesses it has acquired or started, such as Jajah and Giffgaff. It is headed by former O2 CEO Matthew Key and is based in central London, in the heart of media-land in Soho.
The divisions work closely together, with senior executives on each other’s management teams. Global Resources “makes sure we have the devices” and Digital heads the development of new services such as M2M, e-health and e-finance. “We have a common responsibility,” she says.
In addition Telefónica has two relationships — Castillo calls them “industrial alliances” — that she says are “very important to our business”.
The company has a 5% stake in China Unicom. Until June 2012 it was twice that, but the company sold 4.56% back to the Chinese operator for €1.1 billion. And it has an indirect stake in Telecom Italia of just over 10.4%.
Both of these are valuable to Telefónica, says Castillo. “They are good industrial alliances and they bring a two-way benefit.” Alierta is on the board of both companies and this relationship gives “scale and diversity”.
As a banker with such a deep understanding of the telecoms industry, who is now in a senior management position in telecoms, how is she addressing the issues at the heart of the business?
“Europe is less competitive than the US with three or four operators or China with three” — echoing something said by France Telecom-Orange’s CEO Stéphane Richard in his interview with Global Telecoms Business. “It is more difficult to do business in Europe,” he says.
That’s why “we have been a leading proponent of network sharing,” says Castillo. “We can see a more competitive market position through network sharing. At the beginning it was mainly passive network sharing but now it is more active.” Telefónica shares its network in the UK with Vodafone: “It’s a big change in the industry.”
But it’s still a fragmented business, she accepts. “It is in the general interest of the EU to have a highly competitive [telecoms] sector,” says Castillo. “Other types of consolidation would be great for a market that is so fragmented.”
The industry is investing heavily, especially by putting up money for spectrum auctions. The over-the-top providers benefit from the new spectrum, “but we are the provider of those funds”.
Is it going to change? Castillo seems quietly hopeful. “I’m noticing a lot more two-way conversations with regulators and governments,” she says. “I am meeting with them and finding they are open to talk.”
One incentive for these is the unemployment level in many countries in Europe: Spain has one of the worst. And that gives Telefónica another opportunity, she notes. “It is in our interest to encourage enterprise, and help people develop their digital skills, and have more trust in digital services.”
The company is “investing in innovation”, she says — working with entrepreneurs and supporting start-ups and young entrepreneurs. “We are supporting young talent and we are starting a programme for start-ups in Europe. We are promoting leadership and the entrepreneurial spirit.”
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