Telefonica Stock Tumbles 13% After Warning of 5,000 Spanish Layoffs, Dividend Cut

Spain's Largest Telecommunications Operator Plans Major Job Cuts

Spain's largest telecommunications operator, Telefonica SA, is planning to cut at least 5,040 jobs in Spain as part of a sweeping cost-reduction strategy, according to the UGT union. The job cuts, which would affect around a fifth of Telefonica's Spanish workforce, will primarily target three of its domestic units. The union announced the plans following recent talks with the company according to Bloomberg.

Telefonica's chairman, Marc Murtra, outlined his cost-cutting intentions this month, including a reduced free cash flow forecast and a halved dividend. The announcement sent Telefonica's stock plunging 13% on the day, marking one of the company's worst-ever stock routs.

The company is set to hold further discussions with four additional subsidiaries on Tuesday and may announce more job cuts as part of the strategy according to Bloomberg. A spokesperson for Telefonica did not immediately respond to requests for comment according to Bloomberg.

Why the Standoff Happened

The proposed layoffs come amid a broader industry challenge in Europe, where telecom companies face stagnant growth and increasing pressure to cut costs. Automation and the retirement of outdated infrastructure, such as copper networks, are enabling firms like Telefonica to reduce staffing needs. The UGT union has pushed for the job cuts to be voluntary, suggestion early retirement options instead of forced layoffs.

This is not the first wave of reductions. In 2023, Telefonica cut 3,421 jobs in Spain, equivalent to about 16% of its workforce at the time according to Bloomberg. The company employs roughly 25,000 people in Spain and about 80,000 globally according to Bloomberg.

How Markets Reacted

Telefonica has struggled with investor sentiment in recent months. Over the past three months, its shares have dropped 21%, the second-worst performance on the Stoxx Europe 600 Telecommunications index. The benchmark itself fell by around 7% during the same period according to Bloomberg.

At its capital markets day on November 4, Telefonica outlined plans to rein in expenses by optimizing network efficiency, using artificial intelligence in customer service, and reducing real estate costs. These steps are part of a broader cost-cutting and simplification strategy according to Bloomberg.

The company also lowered its free cash flow guidance for this year to about €1.9 billion from an initial projection of €2.6 billion. It now expects free cash flow in 2028 to be 20% lower than what analysts had predicted according to Bloomberg.

What This Means for Investors

The new dividend policy marks a significant shift in Telefonica's long-standing approach, which had traditionally focused on rewarding shareholders through consistent payouts. Instead, the company is now prioritizing cost control and operational efficiency according to Bloomberg.

Analysts are watching closely to see how the restructuring affects Telefonica's long-term growth prospects. The company has yet to fully detail how it will manage the transition without damaging employee morale or customer service. UGT has emphasized the need for a voluntary approach, which could mitigate some of the social and political backlash that often accompanies large-scale layoffs according to Reuters.

The company will need to balance these efforts with the expectations of investors, who are increasingly pushing for consolidation and higher returns across the European telecom sector. The outcome of these negotiations could shape Telefonica's future competitiveness in a fast-evolving industry.