Telecommunications in Latin America: Telefonica's Conquest

“This book represents an independent view about the evolution of Telefónica from its origins as an ITT subsidiary before World War II to its conversion into a large Spanish multinational in recent decades. Its all-encompassing perspective makes the book required reading for those who are interested in how this company became a major player in current Latin American communication markets.” —Jacint Jordana, Universitat Pompeu Fabra, Barcelona

Latin American Telecommunications: Telefónica’s Conquest offers a comprehensive overview of the political, economic, and social factors in Spain and Latin America that have aided the miraculous transformation of the semi-public Spanish telecommunications company Telefónica. What was once a national telephone company that lagged behind its Western European counterparts has evolved into a global telecommunications giant conquering most of the Latin American telecom market. By examining the beginnings of Telefónica as an ITT subsidiary, its nationalization under Franco’s regime, and its recent privatization, this book provides insight into the institutional growth as well as the geographical expansion of this company, especially in Latin America, where all staterun telecommunications enterprises became privatized throughout the 1990s, many of which were bought by Telefónica. This book is unique because it brings Telefónica’s media integration to the fore, tracing and analyzing its many assets and partnerships, ranging from television and film studios to multiplatform media content production and distribution companies. Telefónica’s close ties with Endemol, Disney, and Bertelsmann, among others, are examined in detail. Gabriela Martínez is assistant professor of journalism and communication at the University of Oregon and a research associate for the Oregon Media Literacy Project.

For orders and information please contact the publisher LEXINGTON BOOKS A division of Rowman & Littlefield Publishers, Inc. 4501 Forbes Boulevard, Suite 200 Lanham, Maryland 20706 1-800-462-6420 www.lexingtonbooks.com

LatinAmericanPODLITH.indd 1

ISBN-13: 978-0-7391-2474-1 ISBN-10: 0-7391-2474-9

LATIN AMERICAN TELECOMMUNICATIONS

“This book provides an enormous service for scholars of global communication by filling a gap in our understanding of Telefónica, one of the world’s major media conglomerates. Drawing on a wealth of sources, Gabriela Martínez deftly charts the company’s rise from a regional telecommunications firm to a global giant spanning all forms of old and new media. In doing so, she joins a new wave of scholarship that demonstrates the growing power of Spanish-language media in the world today.” —Vincent Mosco, Queen’s University

MARTÍNEZ

Communication • Latin American Studies

LATIN AMERICAN TELECOMMUNICATIONS

Telefónica’s Conquest

GABRIELA MARTÍNEZ

7/9/08 9:16:10 AM

LATIN AMERICAN TELECOMMUNICATIONS

LATIN AMERICAN TELECOMMUNICATIONS Telefónica’s Conquest

Gabriela Martínez

LEXINGTON B OOKS A division of ROWMAN & LIT TLEFIELD PUBLISHERS, INC. Lanham • Boulder • New York • Toronto • Plymouth, UK

LEXINGTON BOOKS A division of Rowman & Littlefield Publishers, Inc. A wholly owned subsidiary of The Rowman & Littlefield Publishing Group, Inc. 4501 Forbes Boulevard, Suite 200 Lanham, MD 20706 Estover Road Plymouth PL6 7PY United Kingdom Copyright © 2008 by Lexington Books All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of the publisher. British Library Cataloguing in Publication Information Available Library of Congress Cataloging-in-Publication Data Martínez, Gabriela, 1964– Latin American telecommunications : Telefónica’s conquest / Gabriela Martínez. p. cm. Includes bibliographical references. ISBN-13: 978-0-7391-2474-1 (cloth : alk. paper) ISBN-10: 0-7391-2474-9 (cloth : alk. paper) ISBN-13: 978-0-7391-3021-6 (electronic) ISBN-10: 0-7391-3021-8 (electronic) 1. Telefónica S.A.—History. 2. Telecommunication—Latin America. 3. Telecommunication—Spain. I. Title. HE7820.5.Z9T446 2008 384.6098—dc22 2008020203 Printed in the United States of America

⬁ ™ The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI/NISO Z39.48-1992.

To my mother, and to the memory of my father. With them and through them I saw the bright and dark sides of Peru and Latin America. They taught me to recognize the gray areas in between.

Contents

Preface 1 2 3 4 5 6 7

ix

Introduction Telefónica’s Formative Years Spanish Accession to the European Community The New Telefónica Telefónica’s Media Conquest Fundación Telefónica and Social Responsibility Telecommunications: Culture and Politics

1 15 37 57 79 97 115

Bibliography

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Index

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Preface

in a diversity of topics—telecommunications, media, history, politics, economics, and culture. The political, economic, and technological changes occurring since the 1980s have made more evident and significant the relationship between all of these. Indeed, I doubt that today we could study telecommunications and media without addressing major historical shifts in national and international politics, economics, and culture. I was born and reared in Peru under protectionist and dictatorial regimes. Later, I lived through the transition to democratic life to encounter an internal war that lasted twelve years. Once the war ended, the country underwent a political and economic transformation with the adoption of neo-liberalism. In less than a decade, most Peruvian key industries and services, including telecommunications, passed to the hands of foreign companies. These experiences were not unique to Peru but lived throughout Latin America. The entire region became invaded with a new version of technological determinism accompanied by globalization discourses of trade, economic aperture, opportunity for all, and the benefits of rapid improvements in information and communication technologies. All of these have minimally improved the social conditions and lives of people. However, we have seen these ideas greatly benefit transnational corporations. Telefónica is one of them. Latin American Telecommunications: Telefónica’s Conquest has gone through many stages, from a fifteen-page dissertation draft proposal to this book. In this book, I reflect on and analyze the historical transformation of Telefónica within the context of political and economic changes that affected both Spain

T

HIS BOOK REFLECTS MY DEEP INTEREST

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Preface

and Latin America. My main goal with this book is to draw scholarly attention to Telefónica because it has not yet been widely studied despite its rapid ascendance to a privileged position in the constellation of global telecommunications groups. In 2002, while debating a dissertation topic and thinking of Telefónica as a possible subject, I read two books that were inspirational. These books influenced me and led me to the research that I present here. The first was Robert Sobel’s ITT: The Management of Opportunity (1982), which superbly narrates the history of this corporate empire, addressing indirectly Telefónica in its earliest years as a subsidiary of ITT. The second was N. R. Danielian’s AT&T: The Story of Industrial Conquest (1939), which inspired me to look at the complexity of telecommunications as both technological means and powerful corporate institutions. Although these books are not written within critical paradigms of communications and are rather framed within mainstream institutional history, they certainly gave me much to think about in critical terms about emerging global companies, such as Telefónica. My work has benefited from classes in political economy of communications that I took as a doctoral student with professor Janet Wasko and numerous formal and informal conversations on the topic with her. She has always enthusiastically listened to and suggested ideas for both my dissertation and book on Telefónica. I also benefited from Leslie Steeves’s comments about my dissertation. Some of her suggestions have been transferred to this book. The encouragement and warmth of Julianne Newton whenever I ran into her restored in me a sense of humanity in this long process of researching and writing. My work has also benefited from the unexpected openness of Telefónica’s CEOs in Lima, Peru, who were gracious in granting me interviews. The press office of Telefónica in Madrid was equally helpful responding to my inquiries and providing me with material vital for my research. They explained how to use their public electronic archives from which I could access important corporate information long distance. During the writing of this book, I was surrounded by wonderful friends, colleagues, and family. I could not have survived the solitary nature of writing without them. I will always be grateful to Estella Porras, who took loving care of me, sharing hearty meals and fun moments that gave me energy and strength to keep on going. Lisa Thompson, who always called from Berkeley to see how I was doing during this process. Andrew Calabrese, who read my initial book proposal and gave me suggestions for its submission to publishers. Debbie Macey, Carrie Packwood Freeman, and Jennifer Schwartz, who all assisted with editing the manuscript, offering valuable suggestions. My sister, Viviana Martínez, who came to visit me regularly from California and forced

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me to take restorative breaks. Analisa Taylor, who was key to my ability to transform my dissertation into a book. She was an important presence during a good portion of this process. Our intellectual sharing stimulated the workflow and her editorial suggestions enhanced my argument and style. I will always be thankful for her love and care during that time.

1 Introduction

N A BEAUTIFUL DAY IN NOVEMBER 1975, I was eating with my family at a local restaurant in my hometown of Cuzco, Peru. The radio was playing valses criollos, popular coastal music that was broadcast nationally every day at noon as part of a cultural policy that began with the populist regime of General Juan Velasco Alvarado (1968–1975). All of a sudden the music stopped, giving way to breaking news. I clearly recall the radio deejay saying “el dictador ha muerto. Franco ha muerto” (“the dictator is dead. Franco is dead”). The restaurant was not too crowded at the moment, and the few tables with people got quiet while the radio deejay kept on informing us about the passing of Spanish ruler General Francisco Franco. Back then, I was eleven, and I knew Franco was the president of Spain. I also knew he was a dictator, pretty much like the dictators I had already experienced in my childhood. Being born in Latin America at that time meant that in my eleven years I had lived through the dictatorship of General Juan Velasco Alvarado and was beginning to experience the dictatorship of General Francisco Morales Bermúdez, who had deposed General Velasco Alvarado in a coup d’etat in August 1975. Two years earlier, on September 11, 1973, I had learned through the radio and the outcry of university students in the streets of my hometown about the new dictator in neighboring Chile, General Augusto Pinochet. From school and dinner conversations at home I also knew of the dictatorships in Argentina, Brazil, and across Central America. I remember asking my parents who the next dictator of Spain would be, as if it was the most natural thing to have dictators as rulers of nations. My mother and father exclaimed almost simultaneously that hopefully there

O

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would be no next dictator but, rather, an elected president. Franco’s death was a turning point for Spain. After his death, contradictory as it may seem, Spain gained a king and a democracy—in other words, a parliamentary monarchy. In subsequent years, Spain managed to solidify its democracy, enter the European Community (EC, later the European Union—EU), participate in the global market economy, and secure markets once again in its lost colonies of Latin America and the Caribbean. As a child in 1975, of course, I could not have understood the technological transformation the world would experience within the next ten or fifteen years. Later I came to understand that politics, economics, and technology are intertwined, and when operating together, they can unleash dramatic changes worldwide. I also came to understand that what was happening in Spain after Franco’s death would eventually have a direct effect on Peru and other Latin American nations. Back in the 1970s, no one talked about globalization, a common word in our vocabulary today connoting a new kind of interconnectedness between peoples and nations. However, we were already experiencing a globalized world. Spain had been connected to Latin America for centuries through colonization, mercantilism, and a constructed and shared cultural identity. That is why Franco’s death resonated with us. Over thirty years after Franco’s death, Spain is now considered a moderate industrial power (Farrell, 2001). Its major state-run enterprises have now become privatized, following the neo-liberal paradigm (Dyson and Humphreys, 1990; Farrell, 2001). Most of Spain’s large corporations have managed to enter in global competition with first-tier transnational corporations. Such is the case with the telephone giant Telefónica, currently the most important telecommunications company in Spain and one of the largest in the world, with about 57,058 employees in Spain and another 235,000 employees worldwide (Telefónica, 2006). The driving questions in this book are: What is the historical context in which Telefónica began? What are the political and economic forces that have influenced its growth and transnational expansion, particularly as the twentieth century crossed into the twenty-first century? How and why is the Latin American market key to its growth? What is the social and cultural impact of its presence in the countries where this company or its subsidiaries are operating? The answers to these questions will give us a deeper understanding of how transnational corporations in general, and Telefónica in particular, develop in relation to structures of power in different political, economic, and cultural contexts. The historical past that links Spain and Latin America is of great significance for understanding Telefónica’s expansion in the region. Based on former colonial ties, Telefónica and other Spanish transnationals have made inroads

Introduction

3

in dozens of Latin American nations. A Janus-faced mentality influences Spanish foreign policies toward Latin America. On one hand, Spain needs the allegiance of its former colonies and tries to help them; yet on the other, Spain considers it just as natural to exploit those markets (Pollack, 1987). Currently, Spain is the second major direct investor in Latin America, after the United States. Spain has an especially strong presence in five sectors: banking, public utilities, telecommunications, oil, and natural gas. The combined assets are worth approximately $283 billion (Chislett, 2003; Toral, 2005). These direct investments are highly concentrated in the hands of seven corporations: Telefónica, Repsol-YPF, Iberdrola, Unión Fenosa, Endesa, and important banks like Banco Santander and Banco Bilbao Vizcaya Argentaria (BBVA) (ECLAC, 1999; Chislett, 2003; Toral, 2005). Telefónica, Repsol-YPF, and BBVA are the most visible brands throughout Latin America. Spain’s ability to become a major player in foreign direct investment and have its corporations gain a firm grip on the Latin American market is not fortuitous. The changing political and economic paradigms, both in Spain and Latin America, and a well-orchestrated Spanish foreign policy after Franco’s death are what have allowed Spanish transnationals to conquer Latin American markets. Spain’s transition to democracy, its process of economic liberalization, and its integration into the EU have been the principal factors for this country’s development in the latter part of the twentieth century and for its corporations’ geographical expansion. While Spain was beginning to undergo changes in the late 1970s and 1980s, Latin America was facing a deep economic and political crisis. Dictatorships, often backed by the U.S. government, generated widespread repression through disappearances, kidnappings, torture, massacres, and killings. Many of these countries found themselves immersed in deep foreign debt that they were unable to pay back. Most of these debts were primarily owed to U.S. financial institutions, such as the International Monetary Fund (IMF) and the World Bank. It is within this context that during the 1980s and 1990s the Spanish government provided several countries in Latin America with financial incentives in the form of lower credit rates to governments, technical advice and support, social assistance for development, and other types of aid (ECLAC, 1999; Chislett, 2003). These actions created new ties with Latin American states, and, in a way, paved the road for the entrance of Spanish transnationals. In the 1980s when Latin American countries began transitioning from military dictatorships to democracies, most of them confronted major external debt crises, massive poverty, internal political struggles, and weak democratic institutions. At the same time, growing popular animosity against the United States for its economic and political dominance in Latin America, and its notorious role in backing repressive regimes created an environment that made

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the new presence of Spanish investments in Latin America seem less problematic. The new democratic Latin American governments faced pressures from the United States to adopt neo-liberal economic policies as well as to modernize various public sectors, including telecommunications. In the late 1980s and early 1990s, several governments opted to sell dozens of their state-run enterprises. At this moment, Spanish transnationals saw an opportunity for investment. Their aspirations to grow beyond their national borders were supported by a strong foreign policy. The Spanish state secured bilateral and multilateral treaties and other agreements to protect Spanish investments in the region, and it also created a system of public insurance that protects transnationals from risks associated with economic, political, and social instability in potentially unstable host countries (Toral, 2005). Discussions of international communication and the political economy of communication have centered on first-tier transnational corporations primarily from the United States, Germany, Britain, and France. However, Spain’s Telefónica has emerged as one of the major world players in telecommunications. It has also diversified to produce and distribute media content in Europe and Latin America, becoming as powerful and influential as several firsttier transnationals. Yet, because it falls outside the established pattern of economic dominance by the corporations of the countries mentioned above, Telefónica has not yet been adequately studied. This book aims to show how political patterns in Spain and Latin America have affected Telefónica’s ownership, market expansion, and technological development. I focus on the latter years of the twentieth century and beginning of the twenty-first century, roughly 1990 to 2006. However, I also examine relevant parts of the company’s history from its inception in 1924 because they illustrate how domestic and international political and economic climates have influenced the development of this company throughout the twentieth century. As I address the new era of democratization and economic changes in Spain, I examine similar political and economic patterns taking place in Latin America during the 1980s and 1990s. After all, these simultaneous changes in Latin America and Spain are what have allowed the latter to make inroads into its former colonies. The literature on Telefónica is scarce, and the material that does exist focuses primarily on its telephone operations. Despite the expanding global stakes beyond telephony held by this company today, scholarly attention to Telefónica’s economic, technological, and cultural role in Latin America is still rare. Furthermore, the historical connection between Spain and Latin America through conquest, colonization, and mercantilism is obvious, yet most of the literature on Telefónica tends to ignore these aspects. Hence, the expansion of this Spanish company in Latin America is made to appear natural. I want to suggest that

Introduction

5

the expansion of Telefónica and other Spanish corporations is a rearticulation of old patterns of geopolitical and commercial dominance.

General Overview of Telefónica Telefónica has been assigned the “role of a locomotive in Spain’s rapid industrialization” (Noam, 1992, 251) by the Spanish state. In part, this role is thanks to the modernization plan outlined for Spain’s accession to the European Community (EC) back in the 1980s and the European Union (EU) in the 1990s. Telefónica was born in 1924 as a telephone company, and for much of the twentieth century it functioned mainly as a domestic telecommunications operation (Sobel, 1982, 40; Telefónica, 2000). In the last decade of the twentieth century, however, it has dramatically modified its structure, becoming one of the fastest growing global telecommunications company in the world while also expanding into media production and distribution with relative success, particularly in distribution. Since the mid-1980s, Telefónica has been diversifying and expanding steadily to the extent that in 2005 it ranked sixth among the top global telecommunications companies (Annual Report, 2005; Fortune Global 500, 2006). It is the largest and strongest telecommunications company operating in the Spanishand Portuguese-speaking markets, which comprise about 450 million people. In addition to being the largest and strongest telecommunications company in Latin America, Telefónica also has important holdings and diverse interests in media production and distribution outlets in Europe and Latin America. This company, at the moment, operates in sixteen Latin American countries and has shares in several conglomerates operating in the United States, Europe, Asia, and Africa (Curwen, 1997, 87–89; Bustamante, 2000, 305; telefónica.com, 2006). Telefónica encompasses a wide variety of domestic and international investments that overlap and reinforce each other. Aside from offering telephone services (fixed line and cellular telephony), in the last decade of the twentieth century Telefónica has developed a strong media division that produces and distributes cultural products via Internet as well as broadcast, cable, and digital television service. It has investments in the production of films, television programs, music, Internet content, and publishing. Telefónica also manages and distributes data information exclusively for businesses and operates a high-speed oceanic network linking Latin America, Europe, and the United States (Annual Report, 2002). In order to better understand the rapid expansion, diversification, and integration of Telefónica, we need to look not only at the micro-behavior of the company but also the macro-structures that have affected its development. I

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analyze the company within the context of Spain’s historical process of accession into the European Community (EC), later called the European Union (EU). The accession process has played a key role in the development of postFranco Spain within Western Europe. It has also played a crucial role in the domestic and international growth of several Spanish corporations, Telefónica being one of the most important among them. In a global economy where new technologies and movement of information have become fundamental assets, Telefónica has a privileged position among the several companies that the Spanish government has promoted as a symbol of Spain’s place within Europe and the world. For Spain, regaining status in Europe has been of great importance to the extent that after Franco’s death one of the first acts of the new government was to resubmit the country’s application to join the EC, which was granted in 1986. Telefónica’s growth resides in its political and economic convergence with Spain’s national project for becoming an integral part of Europe. Spain’s integration in both the EC and later the EU would give this peninsular nation, and particularly its telecommunications system, an entry to full participation in both the new borderless Europe and the globalized world economy. In 1996, when the EC became the EU, Spain held on to its membership in the union by adhering to new demands set in place for EU members. Among several conditions, the two main demands for Spain involved reducing its high levels of inflation and accelerating its industrial competitiveness. Considered a peripheral nation in relation to more industrialized European countries such as Germany, Britain, and France, Spain needed to create a modernization plan. The goals were to raise productivity levels and to promote investment and technological innovation. This modernization plan was concentrated primarily on cutting costs, privatizing state companies, and building new markets (Dyson and Humphreys, 1990; Farrell, 2001, 5; ECLAC, 2006).

Telefónica’s Background The Spanish state held a monopoly over telephony granted by royal decree in 1884. Between 1884 and 1924, the state was unable to provide services across the entire country and thus granted licenses to private local entrepreneurs in different regions. These private firms would in return pay the state at least 10 percent of their gross income (Noam, 1992, 251). However, due to economic and political upheavals, neither the government nor these private firms could ever satisfactorily serve the growing demand. Telephony in Spain was chaotic throughout this period.

Introduction

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In the early 1920s, General Miguel Primo de Rivera attempted to solve this telecommunications problem and modernize the country by granting a twenty-year concession to the International Telephone and Telegraph Corporation (ITT) (Sobel, 1982; Telefónica, 2000). Under this concession agreement, Telefónica was born officially in 1924 as Compañia Telefónica Nacional de España (CTNE [National Telephone Company of Spain]) (Telefónica, 1974, 2000). ITT invited the most important private Spanish telephone companies at that time—Compañia Peninsular, Madrileña de Teléfonos, and General de Teléfonos—to form part of the new CTNE. In less than a year, however, ITT managed to buy all of the shares from the three local companies, and CTNE became a Spanish subsidiary of ITT, which held the monopoly over telephony in Spain until 1945 (Noam, 1992, 251; Telefónica, 2000). Primo de Rivera, backed by King Alfonso XIII, let ITT freely run its Spanish subsidiary. Services improved and lines were expanded, covering almost the entire territory (Telefónica, 1974). CTNE garnered high revenues for ITT and was the model for ITT’s later subsidiaries in Latin America (Sobel, 1982, 83). Much to the dismay of foreign investors like ITT, however, Primo de Rivera began to have political problems towards the end of the 1920s. His regime had become highly repressive and corrupt. It soon failed (Little, 1985, 41). Between 1930 and 1945, Telefónica had to weather several political storms. One was the direct attack on ITT from left-wing members of the new parliament who sought to revoke its concession. Another was the Spanish civil war of 1936–1939, during which CTNE lost thousands of lines and valuable infrastructure. Yet another source of difficulty was the outbreak of World War II in Europe. Although Spain did not participate in the war, it did experience extreme economic hardship that exacerbated its already devastating material and human losses from the civil war. In 1945, Franco demanded that ITT relinquish all of its shares to the state. ITT transferred CTNE ownership to the state but was allowed to remain in the country to run its equipment firm—Standard Eléctrica Española (ISE)— which it sold to the French conglomerate Alcatel in 1986 (Noam, 1992, 252; Thatcher, 2002, 90). Once CTNE was nationalized, operations and the expansion of lines and services were run entirely by the state and domestic investors. Backed by the state, the local contractor running the company largely dictated the policies for telecommunications in Spain. Over the years, these private contractors and their shares changed hands and new local groups of investors gained control of the company. However, the state always remained the most important shareholder and was responsible for licensing the private sector to run this semi-public, semi-private company.

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The Spanish government acted as the majority shareholder with about 40 percent of shares until 1985, when it sold part of its shares in local and foreign stock exchanges. Over 750,000 private shareholders bought minority shares, including some foreign institutional interests, mainly from Germany, Britain, and the United States (Noam, 1992, 252). In 1996, the EU pressured the state to further liberalize the Spanish economy, which led to a complete lifting of the telephone monopoly (Irazusta and Llorente, 1997). An interesting aspect of this privatization is that the Spanish state still holds an acción de oro [golden share], which allows it to veto the purchase of large percentages of the company by new investors or current shareholders. This prevents “hostile purchasing” of shares by other large corporations, particularly foreign ones (Irazusta and Llorente, 1997). In this way, the Spanish state can continue to safeguard the significant role that this company plays in the Spanish economy (Noam, 1992; Thatcher, 2002). In 1988 the state and the board of directors changed CTNE’s name to Telefónica de España. Ten years later, in 1998, when the company became fully privatized and was gaining a transnational presence, “de España” was dropped from its name. In the 1980s, Telefónica began to participate in other firms, purchasing stock in various companies, including Amper-Elasa, Sintel, Tefisa, Tidsa, and Cetesa (Noam, 1992, 253). Since the early 1990s, Telefónica, its subsidiaries, and its investors have constituted an integrated group of companies known as Grupo Telefónica [Telefónica Group]. Since then, Telefónica has become the leading Spanish investor in Latin America, which has become the company’s principal international market (Bustamante, 2000, 293).

The Latin American Marketplace Three major economic models have characterized the Latin American marketplace. First, Latin America has inherited an export-oriented model from colonial times, selling raw materials to Europe and the United States while importing processed goods at higher costs. In an effort to improve their economies and become self-sufficient, a second model—import substitution industrialization (ISI)—was introduced in the 1930s, although it was more pervasive in the 1970s. ISI encouraged national industrial production using a modern manufacturing model. Under ISI, high tariffs and prohibitions on the importation of certain goods that the country sought to produce for itself were barriers for international trade. Ultimately, both models failed to foster development and economic independence and increased these nations’ debts,

Introduction

9

creating further economic and technological dependency (Green, 2003, 19–22; Petrazzini, 1995). The third major model has been neo-liberalism, which took hold in the 1980s and gained momentum throughout the 1990s. As a recipe for economic growth, its two main components are deregulation and privatization. Although democracy and neo-liberalism do not necessarily go hand in hand, the ascendancy of the neo-liberal model has coincided with several countries’ return to democratic rule after decades of dictatorship in Latin America. Neoliberalism promised an influx of capital and thereby economic growth, which could lead to political stability, assistance for the poor, and improved conditions for the middle class. It appealed to upper- and middle-class sectors whose standard of living had eroded dramatically during the 1970s and 1980s. However, we are now seeing that neo-liberalism promised a kind of growth that it could not deliver. In Latin America (and many other parts of the world) this model has primarily benefited transnational corporations and a very small percentage of the population, creating sharper divisions between the rich and poor within societies. The marketplace for telecommunications and media content has grown extensively in the latter part of the twentieth century. The rapid development and convergence of digital technology has accelerated this growth in Latin America and on a global scale. According to the World Bank and the IMF, foreign direct investment in service industries has proven to be a more stable source of foreign exchange and technology and has been better for development than bonds or equity investment. These institutions state that investing in service industries such as telecommunications is less volatile, while it creates jobs and also introduces the latest technology (Green, 2003; Taylor, 1999; Nonneman, 1996). Although investing in the service industry, particularly in telecommunications, may be more stable, it creates a different set of problems. Some of these problems are labor instability, technological dependency, concentration of investment in large markets, and profit remittances. Regardless of whether Latin American countries are governed by authoritarian or democratic regimes, the state continues to regulate both telecommunications and media, whether as state-run enterprises or as private entities. The transition from dictatorships to democracies has occurred alongside changes from closed to open marketplaces. In turn this has brought about a period of unprecedented growth in telecommunication services and an increase in the amount of media content due to the development of cable and satellite television. However, these phenomena are not necessarily benefiting the region, but rather the corporations involved in the direct investment and those in the business of importing goods and products.

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Parallels in a “New Era of Democracy and Freedom” Yesterday, we celebrated Columbus Day. Some 489 years ago, three ships sailing under the Spanish flag and commissioned by King Ferdinand and Queen Isabella made a discovery that irreversibly altered the course of history and marked the emergence of Spain as a world power. It’s fitting that one who traces his lineage to Ferdinand and Isabella now leads Spain into a new era of democracy and freedom. (President Ronald Reagan, October 13, 1981)

Franco’s death in November of 1975 was the chance for Spain to emerge from dictatorship into democracy, though it also had to contend with economic recession. The transition was possible because Franco had actually set in place the pillars to hold the country when he would be gone. Franco had appointed Prince Juan Carlos de Borbón to take his place in leading the nation. Soon after Franco’s death, Prince Juan Carlos was made king and began to take measures to bring about democracy without alienating the ultraconservatives or the opposing left. The king began constructing a new political system in cooperation with these different factions (Ross, 2000). There was an attempted coup, but it failed. The failure of the conservative military in this coup attempt signaled the king’s commitment to democracy, the strength of the new government, and the desire of the Spanish people to move away from dictatorial regimes. While Spain was in the process of consolidating its democracy, most Latin American nations were still under military regimes. Several countries were dealing with revolutionary political struggles, economic stagnation, unprecedented inflationary problems, and a growing debt with international financial institutions. However, at the beginning of the 1980s, some countries started to return to democratic life. As the decade came to an end, almost all Latin American nations already had democracies, perhaps weak but gaining strength as their political situations and economic policies came to be more stable. Latin America and Spain made the transition to democratic governance and adopted neoliberal policies at a time and in a manner consistent with wider international economic and political changes. These changes brought more benefit to Spain than to Latin America due to the fact that Spain is a direct foreign investor while Latin American nations are the host countries of these investments. Throughout the 1980s, the Spanish government engaged in elaborate preparations to commemorate the five-hundred-year anniversary of the “discovery” of the Americas. These preparations were integrated into Spain’s new foreign policy, oriented toward the support of democracy, human rights, and cooperation for development in Latin America. These policies toward Latin America went hand in hand with efforts to reopen markets for Spanish firms undergoing privatization and internationalization (Maestro, 2005).

Introduction

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In Spain the five-hundred-year anniversary was celebrated ostentatiously in 1992. In Latin America, some met this date with celebration, acknowledging the mutual cultural benefits the encounter of these two worlds brought. For many others, however, this anniversary was an occasion for resolute protest. Most protested against Spain’s legacy of colonialism, affirming a Latin American identity and collective memory. Activists denounced Spain’s history of slavery, exploitation, and cultural degradation since Columbus’s arrival.

Chapter Breakdown Chapter 2, “Telefónica’s Formative Years,” explores the early development of telephony in Spain, the arrival of ITT, and the nationalization of the company during Franco’s regime. I argue that politics have played an important role in the development of corporations, and governments have acted as regulators or protectors of corporations considered assets of national interest. As ITT’s subsidiary, CTNE endured several political and economic upheavals between 1924 and 1945. Since 1945, under Franco, telecommunications was considered a public service sector. The CTNE was a semi-public and semi-private entity that held the telephone monopoly of Spain until 1996 when it became fully privatized. This change was due to Spain’s accession to the EC and EU and the adoption of neo-liberal policies. Chapter 3, “Spanish Accession to the European Community,” examines how the entrance of Spain into the EC and EU relates to the growth and expansion of Telefónica. It looks at deregulatory processes in the EU that have led to Telefónica’s privatization, internationalization, and diversification. The state is no longer a shareholder in this company, yet it remains the principal overseer and protector of the enterprise through its acción de oro [golden share], which allows the government to veto the purchase of large shares by foreign investors. Despite its current private nature, Telefónica is still considered by the state as an entity that must operate in the public and national interest. Spain’s accession to the EU has played a crucial role in the development of Telefónica as a global corporation. Telefónica draws on historical and cultural commonalities to claim Latin America as a natural market. Alongside its traditional investments in telecommunications systems, it has also invested in film companies, television, radio, cable, and the Internet, distributing programming and financing the production of cultural products across the region. Chapter 4, “The New Telefónica,” discusses the company’s structure and holdings at the end of the twentieth century and the beginning of the twentyfirst, especially between 1996 and 2003. In this short period, the company’s full privatization and its rapid structural transformation have turned it into a

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telecommunications and media giant. The total divestment of state shares and the new ownership by major Spanish banks and smaller private investors has been crucial for its growth. At the same time, the lack of local investment and development of advanced technologies has enabled the expansion of this group in Latin America. With its headquarters in Madrid, Telefónica runs operations in Europe, Latin America, Africa, and Asia. After Spain, Latin America is Telefónica’s principal international market, providing the company with over 40 percent of its total revenues. Argentina, Chile, Peru, and Brazil are Telefónica’s major markets in Latin America, where it has achieved virtual monopoly status in telephony services on both fixed and mobile lines. Taking advantage of new technologies, the company has become the largest Internet provider for the Spanish and Portuguese-speaking worlds through its subsidiary Terra Networks. This ISP has quickly become the third largest in the world and one of AOL’s strongest competitors in the international market. Telefónica gained this advantageous position when it purchased the U.S.-based Internet portal Lycos. However, business did not go as expected and Telefónica sold U.S. Lycos in 2004. Some of Telefónica’s other subsidiaries based on new and converging technologies are Adquira and Atento. The first provides e-commerce services and the second provides customer service and telemarketing through over fifty call centers worldwide. With this analysis of Telefónica’s structure we get a sense of its synergetic mode of operation, one of the principal aspects of today’s global corporations. Chapter 5, “Telefónica’s Media Conquest,” addresses the expansion of Telefónica into media distribution and production. From 1996 to 2003, the company went through a significant restructuring process. Telefónica began to acquire assets in important media distribution outlets and production houses in both Europe and Latin America. The worldwide combination of telecommunications and media assets of Telefónica adds up to over $80 billion. In Latin America, Telefónica has bought large shares in television, radio, cable, and film companies, allowing it to determine a great deal of content and hence be involved in the shaping of culture and ideology. As Telefónica entered into international partnerships with powerful media conglomerates such as Disney, Bertelsmann, and Pearson, it gained a position as an important media producer and distributor on a global scale. One of its major acquisitions was production house Endemol, considered a world powerhouse for television and interactive programming. Several of the programs created at Endemol are circulating globally and are being licensed for adaptation to United States and Latin American television networks. Some examples are Big Brother, Fear Factor, and a series of reality and makeover shows that

Introduction

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have caught on in the U.S. television and cable market and that are being exported to the global market. Chapter 6, “Fundación Telefónica and Social Responsibility,” discusses the company’s philanthropic role in Latin America. Social responsibility is a notion of business ethics that many corporations are adopting in order to avoid alienating customers within the global market. Activists and the public in general are more aware of the environmental and social damages caused by transnational corporations and in many instances tend to boycott companies that do not show a minimal level of care for the host countries in which they operate. Faced with these pressures, social responsibility has become an important part of many companies’ branding, allowing them to better sell their image, products, and services. Telefónica’s social responsibility program is directed first to its employees and second to its consumers. It implies that the company has set in place good labor conditions, adequate salaries, and professional advancement for employees by providing ongoing training and educational opportunities through scholarship programs. One of its major contributions in this regard is its privately owned university, where its employees can receive training and earn advanced degrees in areas such as information technology, international business, and economics. However, even with this active social responsibility program, Telefónica has faced serious labor struggles in every country in which it operates in Latin America, where the primary sources of contention have been massive layoffs as well as decreasing salaries and benefits. In 1998 Telefónica created the Telefónica Foundation, an organization dedicated to social development as well as cultural preservation and dissemination. Under social development, the foundation invests in educational programs, scholarships, programs for the disabled, youth sports programs, and rural technology development. Its cultural programs focus on the preservation of historical monuments. The company sponsors the collection and curation of art. It also finances the publication of books and educational CDs and DVDs. Through this foundation, Telefónica plays a significant social role in the countries where it operates. On one hand, the company exploits and homogenizes the market and sends its profits to Madrid. On the other hand, its foundation invests significant resources in fostering culture and promoting the use of new technologies as educational tools. It also addresses many of the pressing social needs faced by the most vulnerable sectors of the population. These philanthropic activities often fill a void left by governments that do not have strong social and cultural policies to serve their populations or the economic means to do so.

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Chapter 7, “Telecommunications: Culture and Politics,” concludes the book with a mix of political economy and ethnographic exploration of the place the Internet and cellular telephony has in Peru and Mexico, looking at how these technologies are influencing culture and politics and how local needs are influencing the use people have for these technologies. These technologies are now part of daily life, particularly for younger generations. Urban low-income people have access to the Internet through cabinas [public booths], and indigenous people in rural areas have access to cellular telephony, having made the leap from no telephones to digital technologies. Today, people are using the Internet as a window to the world, learning of far away places, remaining in contact with distant family and friends, and meeting new people in cyberspace either from their own countries or from abroad. Most people in Peru lack computers and Internet access at home, so a new service industry has emerged to fill this gap. Small entrepreneurs have opened Internet booths, and coffee houses now offer access to the Internet. These places have become sites for social interaction, production of meaning, and popular leisure (Flew, 2002). The Internet is also being used for promoting local tourism abroad, hence commodifying localities and modifying cultural identities. Telefónica mediates between global culture and the local cultures of Latin American countries in countless ways. First-tier global corporations such as Disney, Bertelsmann, Pearson, and most recently Microsoft have partnered with Telefónica because it is uniquely placed to distribute content to a market of approximately five hundred million people in the Spanish- and Portuguesespeaking world. Telefónica offers the infrastructure and diversity of technological platforms that allow it to connect content producers with consumers. At the same time, I suggest that people do not necessarily consume what Telefónica offers in ways the company intends. Some of their services, especially Internet and cellular telephones, have begun to play important roles in mass mobilizations when social strife reaches a boiling point. It remains to be seen whether Telefónica’s conquest of the Latin American market will endure in the political and economic environment that globalization and late-capitalism have created for these developing nations. Currently, we are witnessing the formation of neo-nationalist and neo-populist political parties and governments in countries such as Venezuela, Bolivia, Ecuador, Brazil, and Peru. And these channel a widespread discontent with the failed promises of globalization and promote the reaffirmation of national sovereignty.

2 Telefónica’s Formative Years

of Telefónica’s early history. It covers three formative periods for the company. The story starts with the arrival of the telephone in 1884 under the patronage of King Alfonso XIII. The story continues with the foundation of Telefónica in 1924 and, finally, the nationalization of the company under General Francisco Franco in 1945. Looking at these periods is significant for establishing, first, the social context in which Telefónica started and, second, the political and economic contexts in which telecommunications developed and policies were made or not made at that time. This chapter will provide a historical sense of the major players involved in the creation and running of the company, Telefónica’s early technological achievements, and the ways in which history and technology have been intertwined with relevant political and social issues in Spain and the world. At the beginning of the twentieth century, Spain was submerged in a profound political, economic, and social crisis caused by the loss of its last colonies in the Americas at the end of the nineteenth century. Its position as a world power had been diminishing throughout the eighteenth century, in contrast to France’s and Britain’s expansion and rise. Spain declined sharply in the nineteenth century. Spain’s colonies, however, continued to provide a marketplace for its mercantile goods, cheap resources, and labor for feudal landlords and mine exploiters. Throughout the nineteenth century, Spain struggled to retain its colonies as wars of independence were breaking out in several regions of the Americas. Its long dominion was supported more by mercantilism and ideology than by force. The three core ideas that fueled Spain’s imperial power were el rey padre [the King Father], lo que nos une [the

T

HIS CHAPTER PRESENTS AN OVERVIEW

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ties that bind], and la igualdad y la unión territorial dentro del imperio [the equality of citizens and of territorial units within the empire] (Anna, 1998). As Timothy Anna (1998) explains, the Spanish empire was conceived as one family bound together under the “Father King.” However, no longer wanting the king to be “the Father” or to remain bound to an exploitative “motherland,” criollo and mestizo elites in different colonies rose up against Spain, gaining independence. In 1898 Spain lost Cuba, its last colony. After the Spanish-American War, Spain fell further into a deep economic crisis, having lost access to cheap raw materials, trade revenues, and colonial taxes. These material losses were a blow to the royal elite’s credibility and created a general social crisis in the country. One of the tonics for amending lost morale and improving the economic environment was to look inward and uplift the nation by engaging in internal development and modernization. At that time, the telephone was becoming an item of modernization and the Spanish government sought to acquire the new communication system as part of its development plan.

Telefónica’s Beginnings The Spanish state held the monopoly over telephony, which had been granted by royal decree in 1884. However, the government lacked resources to invest in essential infrastructure for building telephone lines, maintaining lines, and providing nationwide service. As a result, in 1886 the government began granting licenses to private local entrepreneurs in different cities across the country. In 1891, another royal decree regulated the bidding process for building new lines. This royal decree also authorized the commercial exploitation of the four sectors into which the country was divided for telephony expansion (Telefónica, 1974, 2000). At the end of the nineteenth century and start of the twentieth century, Spain’s economic situation did not allow for a significant commercial exploitation of the precarious telephone system, as it only had a few isolated communication lines. In 1895, private investors founded the Compañia Peninsular de Teléfonos. Four years later, this company acquired a license for long distance connections between the cities of Madrid, Barcelona, Zaragoza, Valencia, Granada, Bilbao, and San Sebastian (Telefónica, 1974). When compared to the expansion and use of the telephone in Germany and France, Spain lagged behind. In Germany and France the telephone was becoming a common item for businesses and middle-class families. In Spain, however, it was considered a luxury item and was used mainly by social elites. The majority of people continued to prefer communicating in writing and

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was more likely to use the telegraph, an instrument that was considered an incredibly modern invention at the time. In contrast, telephones seemed limited, as their imperfect connections hampered clarity in sending and receiving sound. Telephones did not gain popularity until years later, after a slow, difficult period (Telefónica, 2000). In 1903, King Alfonso XIII signed a royal decree1 to regulate and popularize the telephone. In order to incorporate more consumers into the telephone grid, the king sought to match the needs of the state with those of the countryside, businesses, and industries. By serving more customers countrywide, the king believed that telephone service could modernize the system of communication and generate greater revenues. In 1907, the government authorized a few other private investors to build and expand urban telephone lines. This authorization was given under the condition that after a certain number of years of commercial development the lines would pass over to state control. In this way, the state avoided directly investing, and private companies developed the communication infrastructure that the government would later control as a strategic national asset. From the beginning, the government considered telecommunications a key resource and was unwilling to hand over total control of the developing networks to private ownership. In 1908, permits were issued to the ayuntamientos [municipalities] authorizing the expansion of urban lines. Under a similar law in 1914, the diputaciones [counties] were also granted permits for expansion to build telephone lines to serve provinces and some rural areas (Telefónica, 1974). Madrid was the point at which all lines converged. Policies for commercial exploitation were set, licenses were granted, laws for the expansion of lines in urban, provincial, and even rural areas were enacted. However, most of these developments remained only on paper because telephony was not growing as expected and service remained unreliable. Neither the government nor the few private licensees had enough capital to operate beyond certain regions, operating primarily in urban areas. In the case of private licensees owning companies, they could not provide services beyond the cities they operated in because they lacked the technology to make long distance connections. Ultimately, there was less competition among private companies seeking to enter each other’s markets due to lack of resources. This created “de facto unrestricted monopolies” (Noam, 1992, 251) in different cities or regions where private licensees operated. In other words, the situation was chaotic with no signs of improvement. For at least a few decades the telephone would remain an urban item for those with the means to have it because inadequate technology and economic hardship hampered the development of a telecommunications national grid and the average Spaniard did not have the economic resources to acquire the new technology.

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It is in this environment that a new company was born. Telefónica’s formative two decades (1924–1944) are closely connected to those of the U.S. International Telephone and Telegraph Corporation (ITT), which had been founded by the Behn brothers in 1920. The Behn brothers successfully established their telephone company first in Puerto Rico and later in Cuba, where they were given control of the Cuban Telephone Company by New York investors (Little, 1979; Sobel, 1982). In 1919 ITT made its business grow rapidly by tending the first oceanic telephone cable from Cuba to Florida, where AT&T was building long distance connections (Sobel, 1982; Telefónica, 2000). After ITT’s Cuban success, in 1923 the Behn brothers looked for other places to invest. At that time, the Spanish government found its fledgling telecommunications system in chaos, and the king ordered the government to offer it for sale on the international market.

The Best Bidder In the latter part of the nineteenth century and the beginning of the twentieth century, the world had changed dramatically. Industrialization was transforming social and political life in Europe. At the same time, the United States was gaining substantial influence in newly independent countries in Latin America, especially after winning the war against Spain in Cuba in 1898. Spain’s neighbors, Germany, France, and Britain, were moving forward in a rapid modernization process, gaining advantage over Spain. Spain’s oldfashioned mercantile economy contrasted sharply with the economic development, urbanization, demographic growth, and social mobility in Western Europe and the United States. Spain was characterized by slow urbanization and lack of social mobility. Spain’s uneven modernity was heightened by conservative ideologies of class structure, nationalistic ideals, and imperial nostalgia. In the 1920s, Spain was still demoralized and fighting internally over the loss of its empire as well as facing the possible loss of its territories in Morocco. General Miguel Primo de Rivera, who came to power supported by King Alfonso XIII, was eager to restore morale, instill order, and catch up economically and technologically with other major world powers. Primo de Rivera sought to attract foreign companies to invest in Spain. During his government, the first order of business was to improve and expand the telecommunications system. On one hand, there were two European companies, Ericsson and Siemens, interested and competing in acquiring licenses for developing the Spanish market. On the other hand, there was ITT with experience in Spanish-speaking countries, namely Cuba and Puerto Rico.

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According to Robert Sobel (1982), ITT proved to have greater experience than Ericsson and Siemens in providing telephone services because they were mainly manufacturing companies. This was the major advantage for which ITT’s bid won the concession. However, there is some disagreement as to how this came about. According to Telefónica (2000), Primo de Rivera handed the license and concession to ITT without considering any other competing companies. Apparently, in 1923 Sosthenes Behn presented a document to Primo de Rivera and King Alfonso XIII that later served as the basis for the king’s 1924 royal decree granting the concession to ITT. Years later, critics of the monarchy would charge King Alfonso XIII with having accepted a $600,000 bribe from Sosthenes Behn to favor his company (Little, 1979, 454). The government’s concession to ITT was controversial since at that time European governments tended to license and contract mostly with European bidders. Besides the charge against the king, it was clear that ITT was not overly qualified compared to Ericsson and Siemens because ITT did not manufacture equipment and could not have fulfilled its promise of rapid expansion and technological innovation. Under the terms of the contract, ITT would found Compañia Telefónica Nacional de España (CTNE). Within five years, this company was to provide nationwide telephone service to about 287,000 customers and reach 342,000 by 1930. The quality of service was to be superior to what was being used at that moment, and the company would employ Spanish technicians and materials as much as possible to create jobs and domestic revenues. The Spanish state would minimally invest, and it would make a profit not through taxes but through a direct income provided by the company. The government was to receive from CTNE about 10 percent of the net revenue earned by the company and never less than four percent of the gross income (Telefónica, 2000). The government committed to not rescind the contractual agreement or take over CTNE under any circumstances for the next twenty years as long as ITT complied with its contractual agreement and payments. Thus CTNE could develop and expand freely without having to worry about political upheavals (Little, 1979, 452). Later the company’s autonomy was put to the test by radical changes and historic upheavals. ITT organized the CTNE out of three large local companies: Compañia Peninsular, Madrileña de Teléfonos, and General de Teléfonos. In a smart business move, Sosthenes Behn invited these three companies to participate in the new enterprise. The Duke of Alba was appointed the head of the board of directors and the Marquez of Urquijo the president of CTNE. Other members of the board included some members of the combined companies, high government officials, and bankers (Sobel, 1982, 39; Telefónica, 2000). In less than a year, however, the Behn brothers purchased all of the shares from their

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Spanish counterparts. Thus, ITT acquired near monopoly status, owning 95 percent of all telephone lines in the country (Telefónica, 1974, 2000; Noam, 1992, 251). Despite near complete ownership of CTNE, ITT’s management system was characterized by having leading Spanish figures and prominent local citizens on the board of directors and in the top ranks of its administration (Sobel, 1982, 49). Many of these individuals had close ties to the government or some other type of influence at higher levels. The day-to-day operation of the company was left in the hands of local individual administrators who knew all the ins-and-outs of Spanish bureaucracy. However, Sosthenes Behn always scrutinized the administration and board’s actions to maintain total control of his company (Sobel, 1982, 49). This managerial style, in which the company operated as a domestic enterprise because the board and the management were led by local figures, proved to be successful for ITT. By the early 1930s, CTNE had become the largest and most notable example of ITT’s telephone subsidiaries around the world.

Vertical Integration Douglas Gomery (1989, 48) defines vertical integration as “the expansion of a business enterprise in gaining control of operations from the acquisition of fundamental raw materials through the sale of the final product.” Vertical integration takes place through direct ownership when a company controls subsidiaries at different levels of the chain of production or has contractual partnership agreements with companies that have interests in various levels of production. Vertical integration aids a company’s growth because it allows it to reduce expenses by handling its transactions within a single entity and, thus, avoiding the loss of capital to external entities. Since its beginning, the telecommunications industry has adopted modes of production that have allowed it to grow quickly and to generate revenues efficiently. This has been the case in the United States and in other parts of the world. CTNE adopted vertical integration at an early stage in its development. Many contemporary global companies have followed ITT’s model, which was first rehearsed with CTNE in Spain and later successfully established across the globe where ITT held interests. There were several reasons why CTNE needed to grow vertically as soon as it could. ITT and the newly formed CTNE were not equipment firms that produced telephones or other telecommunications equipment and that presented a problem for the growth and expansion required by their contract. Thus, it was crucial for ITT and CTNE to acquire a manufacturing company in Europe. ITT, however, did not want to engage in business with com-

Telefónica’s Formative Years

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panies it considered competitors, such as Ericsson and Siemens. At the same time, it did not want to import equipment from the United States because that would have made the expansion of lines extremely expensive and inflated the price of services. Behn was concerned not only with the expense of importing or paying high prices to the competition but also with having to use Spanish factories for the manufacture of equipment (Sobel, 1982, 41). The solution was to integrate the company vertically and manufacture the necessary equipment itself either in Spain or elsewhere in Europe. Between 1924 and 1925, the U.S. government was pressing AT&T to get rid of its European subsidiary firm, the International Western Electric Corporation (IWEC), which produced telecommunications equipment. The IWEC was not faring well abroad because Europe’s telephone companies favored suppliers wholly owned by Europeans. This meant that AT&T needed to send funds from the United States to keep its subsidiary afloat. Further, in order for AT&T to be able to send these funds, it had to inflate its domestic prices for telephone services. The U.S. government saw this practice as abusive because telephone customers were indirectly supporting AT&T’s domestic and foreign operations. For these reasons, the U.S. government continued to pressure AT&T to divest its European interests (Noam, 1992, 252; Sobel, 1982, 42). As a result, ITT looked immediately into purchasing IWEC from AT&T. AT&T’s bankers agreed with the divestment, suggesting selling the subsidiary to another American company. ITT’s acquisition of IWEC gave the company not only a manufacturer for CTNE’s equipment but a major international telecommunications manufacturing presence in different European countries as well. The most important subsidiaries were among the British unit, Standard Telephones and Cables, Ltd., and among the French unit, Le Matériel Téléphonique (Sobel, 1982, 44). IWEC also had subsidiaries in Egypt, South Africa, Canada, Brazil, and Argentina. CTNE and IWEC rapidly became the dominant telecommunications service and equipment provider firms in Spain (Noam, 1992, 252; Telefónica, 2000). Behn changed the name of IWEC to International Standard Electric (ISE). Together CTNE and ISE made ITT a medium-sized international company with growing power. AT&T agreed not to re-enter overseas markets, thus allowing ITT to become the primary international telecommunications company. In turn, ITT promised not to build equipment plants in the United States, allowing AT&T to develop a monopoly over the manufacturing business. This agreement signified a division by AT&T and ITT of what Sobel calls “the world between themselves” (1982, 44). To open up markets and expand profits, these two emerging giants would come to influence many governments. Under the geopolitical order of the first quarter of the twentieth century, nations with

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highly developed industries exercised the power to demarcate freedom of trade, concessions to monopolies, commercial rights, and spheres of political and cultural influence (Balfour, 1997, 6). Little has changed over time; in fact, we can see AT&T and ITT business practices and their relationship with political power as the blueprint of today’s corporate transnationalism and globalization. While traditional empires were failing, new types of empires were developing. The latter would become financially, politically, and socially influential around the world. Undoubtedly ITT and AT&T would become corporate empires with unprecedented influence, paving the way for others to come afterwards. After ITT purchased AT&T’s IWEC, it established research facilities in Paris and London in preparation for consolidating its units. Ultimately, ITT became strong competition for both European companies Ericsson and Siemens. ITT was now supplying equipment and services to Europe and Latin America, both of which had growing urban populations and expanding telecommunications markets. ITT quickly became an important player in the development and establishment of this industry in different Latin American countries based on its success in Cuba, Puerto Rico, and Spain. What lessons can we draw from the foundation of CTNE forty years before it became Telefónica? We shall see that notions of conquest are not unique to military invasions of distant territories but are also illustrative of the managerial practices of many transnational corporations. In many instances, corporations such as ITT and CTNE have acquired more financial power than the states where they operate.

CTNE Growth and the Arrival of Automatic Communication In 1924, when ITT formed CTNE, there were 581 localities with interurban telephone service and about forty thousand kilometers of lines. International calls could take place with extreme difficulty and only to certain parts of France and Switzerland. However, once ITT developed its manufacturing subsidiary ISE, services improved and expanded dramatically. In 1924, CTNE inherited eighty thousand working phones. Within two years, that number had grown to 114,360. By 1926, the first permanent and direct long-distance line between Madrid and Barcelona was established. This was the longest long-distance phone connection within the national territory (Telefónica, 1974). During Primo de Rivera’s administration, CTNE experienced little difficulty growing because it enjoyed complete political support from the state and had absolute control of the Spanish market. In 1926, as part of its expansion and technological modernization, CTNE inaugurated the first automated telephone center in Santander. At the end of 1926, King Alfonso XIII showed sup-

Telefónica’s Formative Years

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port for the company and enthusiasm for the modernization of the telecommunications system by inaugurating Madrid’s first automated telephone center. This center connected different regions of the country through a web of 3,800 kilometers of telephone lines. After the inauguration of this center, several others were built throughout the country. In less than five years, Spain had twenty-seven automated central units operating in eighteen cities: Madrid, Barcelona, Bilbao, Santander, Málaga, Murcia, Vigo, Oviedo, Zaragoza, Balaguer, Cádiz, Córdoba, Jerez de la Frontera, Valencia, Granada, Pamplona, Sevilla, and Valladolid (Telefónica, 1974, 2000). The expansion of telecommunications lines and centers was popularizing the use of telephones among the middle class, creating major revenues for CTNE. By 1929, the number of telephones grew to 180,000 (Telefónica, 1974) and CTNE had constructed 71,800 kilometers of local and long distance lines (Little, 1979, 454). Telephone service was now provided in 2,280 localities and about 62 percent of telephones in use were automatic. King Alfonso XIII and Primo de Rivera were satisfied with CTNE and its parent company ITT because of these monumental changes in telephony. As promised in its initial contract, ITT had indeed achieved a nationwide telephone system within five years. This accomplishment generated enormous profit for ITT, and it was now able to send large revenues back to the United States. As Sobel notes, “CTNE operated more than a third of ITT’s telephones and accounted for better than a quarter of its revenues and earnings. In 1935 it remitted $1.6 million to its parent” (1982, 83). Little observes (1979, 450) that, for the Behn brothers, CTNE was the jewel in the crown of their telecommunications empire. He observes that it was in ITT’s best interest to develop the Spanish system as much as it could while it could. The growth of CTNE gave ITT’s bonds a huge boost on Wall Street. CTNE was the most financially viable enterprise that the Behn brothers had acquired, and its increasing liquidity and margin of dividends was outstanding.

New Government and Policy: Revolution in the Air Initially capitalized at $45 million, the CTNE came to be worth $90 million within its first five years (Little, 1979; 1985, 39). The company was able to count on political support from the Spanish government while Primo de Rivera remained in power. This mood of optimism about the expansion of telecommunications and state support is reflected in CTNE’s monumental headquarters inaugurated in 1929 on La Gran Via in Madrid. For many years, this building was the tallest in the nation’s capital. Its eight-meter tower features a carving of Spain’s shield and is surrounded by the shields representing

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each province. Its main door is carved in baroque style, resembling doors from the seventeenth century. With this design, architect Ignacio Cárdenas engaged the nation’s collective memory of empire, making this building an icon of its once great power. That same year, in 1929, CTNE built a pavilion at Seville’s Exposition honoring Columbus Day and the “discovery” of the Americas. In an official ceremony laden with the symbolism of imperial nostalgia and political overtones, Primo de Rivera placed the first long distance phone calls via radio waves to Latin America, one to Argentina and another to Uruguay (Telefónica, 2000). Clearly, the Spanish government was using a corporation and its technology to play out an iconic identity, reenacting with these two phone calls the “ties that bind” the peninsula to its former colonies. At the same time, for the parent company, ITT, these two phone calls were a great achievement because they were connecting the technical capabilities of its subsidiaries on opposite sides of the Atlantic Ocean. However, Primo de Rivera was beginning to lose popularity. His calls from the CTNE pavilion in Seville were an attempt to prove Spain’s modernization and that the government policies were indeed helping the country to regain a place in the world. These two phone calls could show that Spain’s connection to its former colonies was not totally lost. Spaniards continued to see their former colonies as an extension of the metropolis, and they sought to reconnect Spain and the lost colonies of the Americas through technology. For Primo de Rivera, using CTNE and the technology it provided was a way to maintain his power. For Sosthenes Behn, all of those ceremonies and technological accomplishments simply meant good business across the ocean. ITT had begun its expansion in Latin America and connecting Spain’s CTNE with it was yet another step in building his transnational empire. The political interests of Primo de Rivera coincided with the economic interests of ITT; they supported each other in order to preserve their own power. However, much to the dismay of ITT and other foreign investors, Primo de Rivera’s unpopularity kept growing. Several intellectuals and left-wing politicians denounced his regime as repressive and corrupt (Little, 1985, 41; Rial, 1986). The armed forces, King Alfonso XIII, and other conservatives supported Primo de Rivera throughout most of his regime; however, by 1929, his critics grew louder while his supporters became more skeptical of his ability to hold the nation together. Concerned with the new political situation, the business community and particularly foreign entrepreneurs like Behn became wary of a major social upheaval that might turn business sour in the Spanish territory. This was not a good moment for an upheaval in Spain, considering that the Great Depression had devastated the U.S. economy and was affecting most

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businesses around the globe. The Great Depression was less severe in Spain than in the United States or other industrialized European countries (Campa and Guillen, 1996, 211) because Spain was not immersed in international trading and its domestic trade was still largely based on agricultural products and raw materials. Toward the end of 1929, King Alfonso XIII indicated that it was time for a regime change (Ben-Ami, 1978, 36–37). The king requested that Primo de Rivera resign as soon as possible, and various military leaders advised Primo de Rivera to heed the king’s request before the situation worsened. When Primo de Rivera lost the king’s support, the military could no longer uphold his regime. Primo de Rivera resigned on January 28, 1930, going into voluntary exile in Paris, where he died two months later (Little, 1985, 43; Rial, 1986; Ben-Ami, 1983). Almost immediately after Primo de Rivera’s exile, complaints against CTNE mounted. Within the year, telephone workers in Barcelona and Madrid walked off the job, protesting “low wages, automation, and foreign control” (Little, 1979, 454). Many members of the new government began questioning the terms of the 1924 concession given to CTNE. As Little states: A parliamentary commission charged with examining many alleged abuses under Primo’s dictatorship recommended on August 12 that the republican regime nullify the 1924 telephone agreement. During the next two weeks, Colonel Behn warned several members of the Spanish Government that such action would lead to a serious confrontation with the United States (Little, 1979, 454).

The more radical wing of parliament suggested that it was time to nationalize CTNE, regardless of who served on the board or in the administration. At that moment, the parliament did not consider that ITT’s board and high managerial positions were composed of Spaniards. Members of parliament also understood that ultimately the real owner of CTNE was Sosthenes Behn, a foreigner remitting millions of dollars out of Spain. During this time, however, the company continued providing services, and service remained unaffected by the political problems facing the nation and the company itself (Telefónica, 2000). Company records from 1930 do not mention these problems. On the contrary, the matters of discussion are the expansion of phone lines across the nation, the advent of international service, the distribution of dividends among common shareholders, and the expansion of the social capital, which was unprecedented considering that the rest of Western Europe was suffering from the Great Depression. These 1930 company records reflect a general outlook that the state had struck a very good business deal in licensing the Spanish telecommunications system to ITT. CTNE reported having paid 67.5 million

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pesetas to the Spanish government in its first six years, an unprecedented amount of money for the period (Telefónica, 2000). However, in the streets and in parliament, CTNE was a controversial topic. With the fall of Primo de Rivera and public animosity growing against the king, the company began encountering serious criticism, including the possibility of an in-depth investigation on the original bid and concession. In 1931, new policies were written into the new draft of the Spanish constitution, and the constitutional parliament included an article allowing the expropriation of certain public utilities without compensation (Little, 1979, 455). In early 1931 King Alfonso XIII and his monarchy fell, leaving CTNE with no local political protection (Little, 1985, 92). The country was now in the hands of the parliament and the new president, Niceto Alcalá-Zamora. Many members of the parliament charged King Alfonso XIII with having received bribes from Behn in order to get the concession in 1924 and insisted on revoking ITT’s license to run CTNE. Sosthenes Behn appealed to the U.S. government to intervene in order to protect ITT’s interests in Spain. The U.S. government’s defense of ITT’s interest in CTNE caused an ongoing political struggle between the two countries from 1932 to 1936. The U.S. government intervened through its embassy in Madrid since the parliament was trying to block repatriation of assets and earnings (Sobel, 1982, 79). The embassy had received orders from Secretary of State Henry Stimson to provide any necessary help to Sosthenes Behn and ITT in order to preserve CTNE. The secretary of state instructed his embassy to assist Sosthenes Behn. The U.S. Embassy immediately warned President Alcalá-Zamora that if Spain revoked CTNE’s concession from the hands of ITT, Spain would no longer receive U.S. aid and would encounter hostility (Little, 1985, 97). At the same time in Washington, the State Department warned a representative from the Spanish Embassy that the United States was not going to passively watch American interests being threatened (Little, 1985, 98; Sobel, 1982, 84). The interests at stake were immense: ITT had thousands of stockholders in the United States who would lose their invested capital, and the revenues that the company remitted to the United States were high, providing dividends for the government in the form of taxes. During this time, the government sought to defend American interests in Europe, considering the dismal economic conditions it faced domestically due to the Great Depression. Further, some of Madrid’s press mounted severe criticism of the parliament’s proposal to expropriate or nullify the concession given to ITT in 1924. A clip from the magazine Negocios [Business] appearing in Telefónica (2000, 65) harshly indicates that the Spanish government was in no condition to take over CTNE and efficiently continue the job that ITT was doing. It also accused local entrepreneurs of not risking investments and allowing foreign compa-

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nies to take control of Spain’s enterprises. Similarly, another magazine, La Gaceta Internacional (International Gazette [undated]), defended CTNE, indicating that telephony in Spain developed because of the inexpensive costs for service and the loyal public who found the service to be good. This publication indicated that telephone service prices were lower, especially when compared to costs in neighboring countries. Faced with political and financial threats from the U.S. government as well as antagonism from some of the Spanish press, the new government set aside its attempt to revoke ITT’s license. The Spanish government was seeking to come to an agreement with the American Embassy regarding CTNE’s concession. However, in 1932, the parliament ordered the government to closely watch CTNE’s operations. For the first time, CTNE was required to open its books to public scrutiny. ITT, along with the U.S. Embassy, immediately accused the members of parliament of being left-wing radicals bent on taking over American investments. While both parties argued back and forth, trying to find a middle ground for the scrutiny of CTNE’s administrative procedures and financial remittances to the exterior, the parliament authorized the government to create an independent telephone system run by the state, which would compete with CTNE. Although the state did not in fact create the new independent telecommunications system, it pressured CTNE politically and publicly. During the summer of 1932, there was an attempted coup that failed, and CTNE was charged with having indirectly supported the coup, including placing calls from the leader, General José Sanjurjo, to his fellow conspirators (Little, 1985, 101; Calvo Calvo, 2006). The situation for CTNE worsened throughout the rest of the year. In October, people opposed to ITT’s presence exploded two bombs at a central telephone office in Madrid (Little, 1979, 457). In November, a commission investigating the relationship between CTNE and Primo de Rivera’s regime concluded that the concession to ITT for the creation of the CTNE was “the hypothecation of Spanish sovereignty” (Little, 1979, 458). Based on this conclusion, the parliament opted to revive the bill calling for a revocation of ITT’s license in Spain (Calvo Calvo, 2006). CTNE’s manager, Logan Rock, informed Sosthenes Behn of this development and also sought immediate help from the U.S. Embassy. Once again, the State Department, through the embassy, came to the company’s rescue, which was by far the largest American asset in Spain at the time. Ambassador Laughlin sent John Wiley, who handled American commercial disputes with Spain, to discuss the issue with Spanish officials. This time, the threat was not only a financial punishment for Spain but also political implications. The United States threatened to discredit the Spanish government by accusing it of hostility toward foreign investors. If the Spanish government were to hinder

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CTNE’s operations in any manner, the national and international press would rally against it (Azaña, 1997). Accusations had the potential of adversely affecting the national economy because they implied that not only ITT or other American businesses were in danger, but also that any other foreign investors and businesses were threatened. Once again, Spanish officials backed down, since the government was in no position to lose the trust of foreign investors in the country (Little, 1979, 459; Calvo Calvo, 2006). In his personal diaries, President Manuel Azaña indicated that the United States government had apparently warned CTNE representatives that they were not to engage in any discussions alone with the Spanish government. Although the bill for revoking the concession was set aside, Spanish officials asked ITT to agree to a “binding ‘joint examination’” (Little, 1985, 104). Behn refused, and the U.S. government remained on ITT’s side. In December, the situation escalated again when the Spanish cabinet reconsidered the expropriation bill in an “extraordinary session.” This time, the Spanish government stood firm, maintaining that scrutiny of CTNE was fundamentally a Spanish matter. The discussions of CTNE’s concession and operations were ultimately about Spanish sovereignty and the state’s right to directly control strategic assets, such as telecommunications (Calvo Calvo, 2006; Martínez Ovejero, 2004; Azaña, 1997). The U.S. government threatened to sever diplomatic relations with Spain if the parliament moved forward with its plan to revoke CTNE’s concession. The Spanish government responded that it was the parliament and not the government itself that had the power to determine whether or not the concession should be revoked (Little, 1985, 106). Immediately, Washington called a press conference, acting upon its previous threat to denounce the Spanish government internationally (Bowers, 1954). Secretary of State Henry Stimson and Undersecretary William Castle argued that ITT held a legal document granting it the concession to form and run CTNE for a period of twenty years. They stressed the legal validity of government agreements with foreign companies and argued that new governments could not dismantle contracts that previous ones had established. They stated that the expropriation of this company would set a dangerous precedent for all businesses operating in Spain. They also pointed out the improvements in telecommunications since the arrival of ITT. Secretary of State Stimson announced the U.S. government’s intention to break diplomatic ties with Spain. This caused an upheaval in Madrid’s press, the parliament, and government circles (Little, 1979, 461). One of the main defenders of Spanish sovereignty was Indalecio Prieto, Minister of Public Works and a prominent socialist leader in parliament. Prieto worked to develop the country’s communications infrastructure, such as

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29

roads, railroads, and transportation in general. Although Prieto believed telecommunications needed to be under Spanish control, he was wary of the political and economic implications of revoking a granted concession. In his diary entry of December 2, 1932, President Azaña wrote: Although difficult to believe, [Indalecio] Prieto has agreed to negotiate and reassess Telefónica’s contract. He judged the North American government’s attitude harshly but also believed that a diplomatic rupture with the U.S. would be disastrous (Telefónica, 2000, 75 [my translation]).

Four days later, after his meeting with CTNE’s general director, President Azaña again noted in his diary that his government’s capitulation was inescapable given American economic and political dominance (Azaña, 1997). At that moment, Azaña asked the parliament to halt its proceedings on the expropriation bill and work instead to create a joint commission to reassess the concession at a later date. The joint commission was to work on the basis of mutual consent between the Spanish government and ITT (Telefónica, 2000). The parliament voted 184 to 11 to abandon deliberations regarding CTNE’s concession. The majority of parliament members voted in favor of changing the bill and opting for reassessment; however, members in favor of the expropriation bill abstained from voting. The turn of events was a victory for ITT and for the U.S. government. It clearly shows the close ties that ITT executives had with the U.S. Embassy and State Department. Beyond these social and political connections, these events show us how the U.S. government coerces weaker national governments in its efforts to support major American corporations operating abroad. Transnational corporations such as ITT bring large revenues to the United States, and they extend American political and cultural influence abroad. Although thwarting the Spanish government’s attempt to revoke CTNE’s license was a triumph for ITT, the company had to deal with labor conditions in order to appease increasing discontent among workers and the new formation of telecommunications unions. In April 1933, the first collective bargaining agreement was signed between the company and its workers. It set a forty-eight-hour workweek limit, paid sick leave up to thirteen weeks per year, and determined salaries by group and rank excluding executives and upper level management (Telefónica, 2000, 75). The Civil War The left swept the national elections in February 1936. Azaña, who had served as president in 1932, returned as leader of the Frente Popular [Popular Front]

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and became the presidential victor. This fueled discontent among conservatives and the military. A backlash soon followed in the form of the worst crisis in the history of Spain: the Spanish civil war.2 This conflict lasted for three long years, inflicting catastrophic social, political, and economic devastation. However, CTNE’s 1935 annual report surprisingly ignored the social upheaval and the continuing problems between the company and the Spanish parliament. The report made it appear as if nothing extraordinary was occurring and as if none of the changes throughout the year had affected company operations. However, Behn, concerned with the political developments between February and June of 1936, warned the State Department and the American ambassador in Madrid, Claude Bowers, that Azaña’s socialist government was endangering CTNE’s operations and ITT’s interests in Spain (Little, 1985, 187; Bowers, 1954). Ambassador Bowers recalled in his memoirs that it was not the socialists who were sowing unrest but the fascist and anarchist movements. According to Bowers, these two opposing groups were destabilizing the socialist republic by provoking disorder in different areas of the country just as Azaña assumed the presidency (Bowers, 1954, 233–34). The Spanish civil war erupted in Morocco in mid-July 1936 with a rebellion led by General Francisco Franco. The military insurrection soon spread to Cádiz, Seville, and other garrison cities (Sobel, 1982, 85; Torres, 2003). The ultra-conservative nationalist army rapidly advanced, spreading chaos across Spain. Italy and Germany provided military and human power to Franco to defeat socialism. Supported by the Soviet Union, the Azaña government, the left, and the Popular Front resisted Franco’s attack on democracy. The participation of the international brigades—multinational groups of people volunteering to defend Spain from the fascists—aided the Spanish people’s resistance against Franco and his supporters (Jackson, 1965; Jackson, 2002). The war lasted from July 1936 to March 1939. Behn, who was resolutely anti-socialist, offered his support and the services of CTNE to Franco throughout the war. The CTNE provided the means for Franco to be in contact with his generals and collaborators in order to coordinate their movements in different parts of the territory (Sobel, 1982, 85; Little, 1979, 471; Jackson, 1965, 248). For Behn, it was important that the military and conservatives rise to power so that his company’s interests would be secured. According to Sobel (1982), Behn was outspoken about his anti-socialist sentiments and often publicly expressed his support for Franco. People loyal to the democratic Spanish republic and aware of Behn’s support for Franco seized several of CTNE’s installations. In 1937, Republican loyalists seized CTNE’s main installation in Barcelona (Telefónica, 2000). In many other cases, Franco’s army inadvertently destroyed CTNE properties as well (Sobel,

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1982, 86). During the civil war, about eighty thousand phone lines were destroyed. By the end of the war, CTNE was in complete disarray (Telefónica, 1974, 2000). During the civil war, the country was divided in half, not only ideologically but also territorially. CTNE, adapting to the war, divided its operations into two main sectors. It created five central offices: three were located in the region known as zona nacional [national zone], which encompassed the area under the control of the Francoists in Tenerife, Seville, and Valladolid; and two were in the regions under the control of the resistance in Madrid and Barcelona. Behn ordered each of these offices to become self-sufficient in order to continue paying employees during this tumultuous period. Financial accountability would have to wait until the war’s end (Telefónica, 2000). The civil war ended with the triumph of Franco. To Behn’s surprise, Franco attempted to revoke CTNE’s concession in order to grant entrance to a German company in payment for German aid during the civil war. However, Ambassador Bower and the State Department threatened to reject any Spanish applications for loans if Spain revoked the concession. Franco backed down, but did not lift the freeze on ITT’s revenues that had predated the war. Franco also forced Behn to include a few of the general’s trusted advisors on the board of directors to oversee CTNE’s reorganization (Sobel, 1982, 87).

The Nationalization of CTNE CTNE’s nationalization was an important political and economic move for Franco’s government. It was also a sign of ITT’s coming crisis in Europe. After the civil war, CTNE encountered difficulties rebuilding its damaged infrastructure. As World War II exploded in Europe, it was extremely hard to get materials for rebuilding phone lines and almost impossible to expand new lines. Although Spain did not participate actively in World War II, the country’s economic situation was precarious. During World War II, ITT’s subsidiaries in other European countries such as Germany were under tight government control, and their revenues could not be remitted to the United States despite Behn’s connections and influence among top members of the Nazi Party (Sampson, 1973). Between 1940 and 1945, the Spanish government allowed ITT to continue operating CTNE. However, its earnings were frozen. Then, in 1944, Franco issued a decree ordering CTNE to employ only Spanish citizens, including top officials in managerial positions, which until then had been staffed mainly by U.S. citizens close to Behn. Furthermore, Franco stipulated that Spanish nationals must own the majority of the company’s common stocks rather than

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foreigners. As part of his nationalistic agenda, Franco sought to increase the role of the state in managing CTNE. On March 14, 1945, ITT’s twenty-year license expired. At this point, the state bought a large share of the company. At the same time, Behn had lost interest in renewing the concession due to the political and economic instability in Europe. ITT willingly sold the company back to the Spanish government for $83,000,000 in cash and bonds (Little, 1979, 471; Telefónica, 2000). The Spanish government paid a highly inflated price for the time, but it gained control of the company as a result (Jordana, 2002, 90; Telefónica, 2000). With this purchase, the Spanish government directly owned 79.6 percent of the company’s common stock (www.lideralia.org). What is not clear is whether the rest of the shares remained in the hands of ITT or were sold to Spanish private investors. The new president of the company was José NavarroReverter, who acted in that position from 1945 to 1965 (Telefónica, 2000). Two valuable things, one for employees and the other for consumers of telephone services, came out of CTNE’s purchase by the state. Employee salaries increased and service costs decreased (www.lideralia.org). The company and the state drafted a new agreement in which a new monopoly license was granted on December 31, 1948 (Telefónica, 1974, 2000; Little, 1979, 471). Additionally, CTNE signed a twenty-year contract with ISE, ITT’s equipment manufacturing subsidiary. ISE was to remain CTNE’s telecommunications equipment supplier (Jordana, 2002, 90). The nationalized CTNE came to be one of the government’s dominant holding companies that operated under the supervision of the Dirección General del Patrimonio del Estado (DGPE). This institution functioned under the Ministry of Economy, Finance, and Commerce (www.reference.allrefer.com/spain). From the Franco era to the 1990s, CTNE was a semi-public and semi-private institution. The government held the majority of shares and appointed the chair along with some of the top managers. However, the company regulated itself and dictated most of the telecommunications policies for the country according to its own needs for providing services and expanding throughout the national territory (Noam, 1992; Jordana, 2002). CTNE remained operating as a national monopoly during most of the second half of the twentieth century.

The Franco Era Franco’s regime lasted until the day of his death, November 25, 1975. This regime was ultra-conservative and nationalistic, and it was truly a one-man dictatorship. Franco only relinquished some control over day-to-day government operations during his last years of life as he continued to grow increas-

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ingly ill. Until then, power and all final decisions remained in Franco’s hands (Coverdale, 1979, 13). The legitimacy of Franco’s power was based mostly on his victory at war, but, as the years went by, his political position grew stronger due to a “prolonged peace and order, and ultimately by economic development” (Coverdale, 1989, 14). Franco’s political strength also continued in part because he outlawed all political parties, which were potential competitors. Members of socialist and communist parties were persecuted and brutally repressed (Gunther, Sani, and Shabad, 1986, 23). After the civil war, Spain became politically isolated. Due to its nationalistic and ultra-conservative government, it was treated as an international pariah (Blakanoff, 1986). Spain’s recovery and growth after the civil war took place in isolation. Under Franco, Spain was a corporatist state that created two chief structures for promoting existing and new enterprises: the Instituto Nacional de Industria (INI [National Industrial Institute]) and the Dirección General del Patrimonio del Estado (DGPE [General Directorate for State Assets]) (www .reference.allrefer.com; Blakanoff, 1986, 131). As mentioned above, CTNE became one of the key government holdings under the DGPE. The Franco government was very protective of its national industries (Blakanoff 1986, 131), particularly those it considered strategic assets, such as telecommunications. Like most nationalistic governments in the world, Franco’s government was no exception in seeing and treating telecommunications as a strategic national asset, which should operate as a monopoly with strict state oversight. Blakanoff indicates that this regime developed three major policy instruments of pervasive state interventionism. One of them was the most important for the protection of industries, called the Law for the Protection of National Industry, which was adopted in late 1939. Blakanoff (1986) states: The industrial licensing law enabled established firms to block the entry or expansion of competitors and deterred investment by foreign enterprises in the Spanish economy (131).

It was within the logic of this law that CTNE came to be nationalized and protected after ITT pulled up stakes. Blakanoff (1986, 131) also notes that Franco consolidated all twenty-four separate national trade unions under one organization, covering industry, agriculture, and services. This brought together labor and management into one single organization, creating labor relations based on the notion of “cooperation,” which meant that workers could not strike and employers could not lay off workers when production demands fell. The economic system during the Franco era did not have capitalistic characteristics, but it was not socialist or communist either. Perhaps, as indicated before, the best way to describe it is nationalistic and corporatist. Most means

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of production were in private hands. However, the government was in charge of allocating all resources (Blakanoff, 1986, 134). It is in this political and economic environment that CTNE recovered its lost infrastructure and began to grow again domestically. Under Franco, the company’s growth was slow when compared to public demand. By 1950, the company had 14,723 employees, and, by 1952, it had installed 100,262 new telephones (www.lideralia.org). By 1955, the country had one million telephones in service. CTNE used this figure to demonstrate Spain’s modernity: At the time, it was one of only eleven countries in the world that had more than a million telephones (Telefónica, 1974). Yet there were still about two hundred thousand requests for service, which meant that despite the company’s renewal and growth, it still could not fulfill consumer demand. In 1956, CTNE inaugurated a coaxial cable installation between Madrid, Zaragoza, and Barcelona that would carry a higher volume of calls and also provide international calls to more countries. By 1957, Spain’s telephone customers could communicate with 107 other countries (Telefónica, 1974; www .lideralia.org). During this year, CTNE created a radio-link between Madrid and Seville using telephone lines, making possible the transmission of the first televised soccer game via Televisión Española (TVE) (Telefónica, 1974, 2000). This innovation marks the entrance of telecommunications into the world of television in Spain. Most of the technological development and growth of CTNE during the Franco era occurred in the decade of the 1960s and the beginning of the 1970s. This was due mainly to the government’s promotion of industrial development across the nation and the overall economic growth of the country. In 1957, Franco reorganized his cabinet to include a younger generation of men who were given power over several key ministries. The new cabinet members were committed to an international market economy and were interested in reinserting Spain into the Western European sphere (Blakanoff, 1986, 136). Under this new cabinet, Spain leaned more towards capitalism, though certain protectionist measures remained in place to protect nationalized industrial and service sectors. By 1965, CTNE had one hundred thousand common stock shareholders and thirty-two thousand employees. That same year, the company inaugurated the submarine cable Pencan-1 between Cádiz and Tenerife. At the time, this was the broadband cable with the highest capability in the world (www .lideralia.org). Two years later, a new group of managers took control of CTNE’s operations. With this change, the company created its own equipment manufacturing division, breaking away from its principal supplier, ITT’s subsidiary ISE (Jordana, 2002, 90; Telefónica, 2000).

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35

Throughout the 1960s, CTNE participated in the manufacturing of the ECHO-II satellite. In the early 1970s, the company became a member of the International Satellites Consortium (INTELSAT). By the time of Franco’s death in 1975, CTNE had managed to connect Spain with the United States via TAT-5; Spain with Italy and Bilbao with London via MAT-1; and, lastly, Spain and Brazil via BRACAN-1 (www.telefónica.es, 2000). Contrary to the expectations of observers who thought CTNE would surely collapse after ITT’s exit from Spain, CTNE continued developing and functioning as a hybrid company, both publicly and privately owned (Little, 1979). Despite CTNE’s stability, its technological developments, and its internal growth, the company never solved the problem of supplying facilities to meet the existing demand. The lack of telecommunications policies allowed the company to control the market and provide services at its will. Franco’s death and the transition to democracy in the late 1970s and early 1980s had little effect on the company’s structure and operations, since, as Joaquín Jordana (2002, 90) states, it remained “largely independent of the main government policies.” Major changes did not occur until Spain became a member of the European Community (EC) in 1986. Spain’s accession to the EC would solidify Spanish democracy and promote a more liberalized economy. These two aspects triggered the company to begin asserting itself at an international level. At the same time, the government finally began to develop telecommunication policies to regulate the domestic market and to compete at a global level (Jordana, 2002, 91).

Conclusions Telefónica’s parent company was originally the American telecommunications giant ITT. Beginning in 1924, ITT had an exclusive contract and a twenty-year license with the Spanish state, which at the time was led by King Alfonso XIII and General Primo de Rivera. ITT helped modernize and expand the telephone system of Spain. The lucrative CTNE was the jewel of ITT’s empire and served as an example for its other subsidiaries in European and Latin American countries. CTNE endured severe political and economic upheavals between 1924 and 1945. These events almost forced ITT out of Spain before the official time to either renew or end its contract. The fall of Primo de Rivera and King Alfonso XIII and then the Spanish civil war are three major events that affected this company. However, CTNE managed to survive until 1945, when the Spanish state nationalized the telephone company and bought its shares under Franco.

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Under Franco, telecommunications was considered a public service sector. CTNE was a semi-public and semi-private entity that held Spain’s telephone monopoly until the 1990s when it became fully privatized.

Notes 1. In this same decree women were officially incorporated into the labor force for the first time; telephone operators were to be known as las señoritas telefonistas [lady telephone operators]. Women had already been providing labor, but had not been officially recognized. This decree gave them a place in the developing service sector and set up two categories of female workers: telephone operators and telephone assistants. The operators were paid almost twice as much as assistants (Telefónica, 2000). 2. The number and quality of books written in both Spanish and English on the Spanish civil war is extraordinary. I will not go into detail about the war but only cover aspects of it related to its influence on the company. Here, however, I recommend a few books on the civil war: Soldados De Salamina by Javier Cercas (2004); The Spanish Civil War, the Soviet Union, and Communism by Stanley G. Payne (2004); British Volunteers in the Spanish Civil War: The British Battalion in the International Brigades by Richard Baxell (2004); Alvah Bessie’s Spanish Civil War Notebooks by Dan Bessie (2002).

3 Spanish Accession to the European Community

HIS CHAPTER DISCUSSES THE FORMATION of the European Community (EC) and European Union (EU), Spain’s accession to both, and the influence that these entities and Spain’s membership in them have had on Telefónica’s privatization and internationalization. These political processes have directly influenced Telefónica’s growth and expansion. After the transition to democratic life in 1976, Spain’s accession to the EC is probably the most significant moment in contemporary Spanish history. After forty years of an ultranationalistic, authoritarian, conservative, and traditionalist government, the entrance of Spain into the EC clearly marked the end of the Franco-era value system, particularly its economic, political, and cultural isolation. With the new opening towards Europe, old hierarchical economic, political, and cultural relations toward Latin America revived. Spain developed a foreign policy reformulating ideologies and symbols of the motherland, cultural ties, and the discovery of America. Spain cast Latin America as its most natural market, and Spanish corporations as rightful and benevolent heirs. Spain used this ideology to carve out and protect its economic niche in the EC and later in the EU.

T

The European Community and Spain Thomas Burgess defines the EC as “an organization set up by a group of Western European countries with the aim of achieving eventual political union through the gradual process of practical economic integration” (1986, 568). — 37 —

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After the devastation of World War II, some Western European nations began to take the idea of unification more seriously. The six founding members of the EC (Italy, France, West Germany, Luxembourg, Belgium, and the Netherlands) signed the Treaty of Paris in 1951, forming the European Coal and Steel Community (ECSC) (Nugent, 2003, 22). Although this treaty did not form the EC per se, it created an industrial community that brought economic benefits to its member nations. The success of the ECSC led these six countries to sign the Treaty of Rome in 1957, creating the European Atomic Energy Community (EURATOM) and the European Economic Community (EEC). With the EEC, member states established a plan for removing trade barriers and forming a common market (Smith, 2002; Nugent, 2003), which would strengthen their national economies. The Treaty of Rome and these three entities—ECSC, EURATOM, and EEC—created the institutional pathways for today’s European Union. The six nations that formed the union opted for integration, even though each had to give up a measure of sovereignty to a supranational decision-making power. The partial loss of sovereignty, however, was offset by economic benefits, allowing member nations to expand their markets and improve citizens’ standard of living (Burgess, 1986, 570).1 In 1967, the three institutions merged, and hence, one commission, one council of ministers, and one European Parliament began to operate. In the 1990s, the EC changed its name to the European Union (EU), reflecting the subsequent integration of more countries and the creation of a common currency.2 EU membership enhanced Spain’s status in Europe and the world at large, allowing it to pursue new strategic connections with its former colonies in Latin America and the Caribbean. Along with Portugal, Spain acts as the main political body advancing EU interests in Latin America. At the same time, as Telefónica and other Spanish corporations operating in Latin America clearly show, Spain looks out for its own interests and promotes its own economic agenda in the region.3

The Death of Franco and Spain’s Entry into the EC/EU In the early 1960s, several European governments, including that of Spain, saw the positive economic and political outcomes of the EC and integration of the six founding nations. Spain’s accession to the EC took place in January 1986 and was the culmination of a political process that started a quarter of a century before. In 1962, Franco’s government made an initial request for membership. EC members denied the request because they did not approve of Spain’s dictatorial government (Coverdale, 1979; Pollack, 1987). The Treaty of

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Rome states that one of the conditions for EC membership is democratic governance (Diez Medrano, 2003, 148). However, in 1970 the EC did grant Spain a preferential trade agreement whereby tariffs were mutually reduced and previous restrictions on certain goods were lifted (Nugent, 2003, 30; Diez Medrano, 2003, 151). This occurred when Franco began adding younger economists with a more contemporary and open vision for conducting the economy and international affairs to his cabinet. After a long road of diplomatic maneuvering and deep internal economic and political reorganization, some southern European countries began gaining membership in the EC. In 1981, Greece became the first of these peripheral nations to gain entry. In 1986, Spain and Portugal were granted entry (www.europa.eu, June 12, 2006). Upon Franco’s death in 1975, King Juan Carlos de Borbón set out to modernize Spain’s political and economic systems. The king appointed conservative Torcuato Fernández Miranda as the new president of the Spanish parliament. He relied heavily on Fernández Miranda to help maneuver the nation towards a solid democracy and saw him as the key person able to appease conservatives and the military establishment while moving the nation toward a more open and modern society (Coverdale, 1979), which are two necessary conditions for membership in the EC. In 1977, the government reapplied for full membership to the EC. The negotiations were difficult and slow because some of the member countries regarded Spain as unfit for membership. The arguments were that Spain was still transitioning from a dictatorial regime and that its economy, as a result, was outmoded. Spain’s economy was still heavily dependent on agriculture, and although its industries had grown compared to other southern European nations, its productivity did not meet EC standards. To make matters worse, before the eyes of other EC members, most of its industries continued to operate under strong state protectionism. On the other hand, the EC wished to encourage political stability and economic progress in southern Europe in order to widen and strengthen its political and economic base and gain access to more markets from north to south (Nugent, 2003). Nevertheless, the EC kept Spain waiting almost ten years, demanding that it transition successfully to democracy and raise living standards. Despite this, Spain’s preferential trade agreement status, granted in 1970, aided its economic growth. For Spain, European integration meant breaking out of its long spell of international isolation and irrelevance. Membership in the EC was not regarded as an exclusively economic achievement but as a symbol of Spain’s long-awaited return to democracy and of a future tied with European superpowers. Through EC membership, the new government aimed to solidify Spain’s international presence across Europe as well as on the other side of the Atlantic Ocean.

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Political and Economic Transformation Accession to the EC/EU required the kind of institutional stability that would guarantee democracy, rule of law, human rights, and respect for and protection of minorities. It also required a functioning market economy capable of withstanding competitive pressure and market forces within Europe and globally. Member nations were also required to adhere to similar political and economic goals, which required member states have the same currency. Juan Carlos de Borbón was sworn in as king of Spain immediately after Franco’s death in November 1975. He assumed political leadership after almost four decades of dictatorial regime. At his first meeting with the Spanish parliament, the king showed his commitment to ushering in an era in which Spain would become a free and modern society (Coverdale, 1979, 36). While this was shocking news for the conservatives and the military, for most Spaniards it meant the jubilant beginning of democracy and open participation in world affairs. In addition to appointing Torcuato Fernández Miranda as the new president of the parliament, the king named Carlos Arias Navarro as president of the country (Coverdale, 1979; Conversi, 2002). Although these two appointees were conservative and some in the parliament were disappointed by the king’s decision, he aimed to appease the military and the conservative elite, both of whom still held a great deal of power (Coverdale, 1979). This diplomatic strategy was meant to ensure a smooth transition from dictatorial to democratic life. It also helped steer the country towards economic liberalization and diminish government involvement in state corporations. However, major economic changes and solidification of political life did not begin until the 1980s. In the latter part of the 1970s and even the early 1980s, democratic life was still fragile, and the focus at that moment was on solidifying democracy rather than expanding the economy. For example, in 1976, a few months after Arias Navarro was appointed president, the king replaced him with Adolfo Suárez from the newly formed party Unión de Centro Democratico (UCD [Union Democratic Center]). The king saw Arias Navarro as lacking the flexibility necessary to accelerate democratization and economic growth. Suárez had begun his political life during the dictatorship but had proven himself open to political reform. As president, he enacted a political reform law, approved in 1976, that paved the road for a faster democratization process, including the writing of the new constitution in 1978 and the first democratic elections in forty-one years in 1979 (Gibbons, 1999; Newton, 1997). Suárez won the first presidential election with a clear margin of victory over his closest rival Felipe González from the Partido Socialista Obrero Español (PSOE [Spanish Socialist Workers’ Party]) (Gibbons, 1999; Newton; 1997). Despite the fragility of this new political life and the potential for in-

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stability, between 1976 and 1978 Spain established new democratic institutions based on the twin principles of modernization and decentralization (Newton, 1997, 5). This modernizing value-system prioritized the secularization of society, the promotion of political pluralism, the introduction of a more up-to-date economic system, and an overall break with the conservative and traditionalist modus operandi at both domestic and international levels. Nevertheless, internal divisions in Suarez’s party—UCD—and opposition from both the most conservative wing and radical wing of the parliament forced him to resign in January 1981. In February 1981, there was an attempted coup, led by civil guard Lieutenant-Colonel Antonio Molina, in which members of the parliament were taken hostage. The king, politicians, and the population at large reacted immediately against the coup, favoring democracy and repudiating Molina’s attempt (Newton, 1997, 6). The coup was crushed immediately, and the clear opposition from all sectors strengthened democracy in the country. The message was loud and clear: Spain was not going back to a dictatorship. In March 1981, Leopoldo Calvo Sotelo from the UCD took over as president until Felipe González of the PSOE was elected in 1982. This election tilted the power to the left (Gibbons, 1999, 12). Felipe González assumed the presidency in early 1983 and ruled democratically for fourteen years. González and his Socialist Party were reelected on three subsequent occasions (1986, 1989, and 1993). Gonzalez’s government operated much like other Western European social-democratic governments, meaning that moderation was the key to its political success. González’s politics was far from traditional socialism, such as the Soviet Union at the time, where the state centralizes power and gives the government most of the control over the national economy. Rather than pressing for radical social, political, and economic changes, González and the PSOE built upon previous reforms and worked closely with the constitutional monarchy of King Juan Carlos. Both González and the king sought to consolidate the nation’s new system of decentralized government and administration based on autonomous regional institutions. They restructured several important industrial sectors in order to fulfill EC expectations for efficient operation and to follow deregulatory policies being adopted throughout Western Europe. Although unemployment continued to rise during González’s several administrations, moderate progress was made in terms of a gradual reduction in both the balance of payments and inflation (Newton, 1997; www.sispain.org, June 6, 2006). González and his party also set an international agenda since he first got elected. In1982, the PSOE election manifesto called for Spain to engage in international cooperation with the impoverished countries of Latin America and the Caribbean. However, as we shall see in subsequent pages, this international

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cooperation was not simply a gesture of good will. Rather, it was part of an expansionist plan to place Spain and its corporations in an optimum position in Latin America and, ultimately, the emerging global marketplace. Throughout the 1980s, González and King Juan Carlos sought to strengthen ties with Spain’s ex-colonies. The king visited many countries around the world to show Spain’s interest in reconnecting with the international community. He made a special effort to build anew relations with Latin America in hopes of creating new economic partnerships. He drew on the notion of a shared cultural heritage even though it was based on the colonial past. For example, under Franco the conservative Instituto de Cultura Hispanoamericano had promoted Spanish culture in Latin America. In 1988, this organization was given a new life as the Instituto de Cooperación Iberoamericano (ICI) and reoriented toward providing technical support, economic assistance, and scientific support. In anticipation of Spain’s accession to the EC, the government invested heavily in economic and technological projects in Latin America through ICI.

Accession at Last: Neo-liberalization and Back to Latin America Spain signed the accession agreement in 1985 and officially became an EC member on January 1, 1986. At this point, González dismantled the protectionist measures that had made Spanish industries lag behind international competition. These changes, however, could not be made overnight. The accession agreement called for gradual integration to be carried out over a sevenyear period. During those years the government had to phase out custom duties, tariffs for EC goods, tax rebates on exports, and import quotas (Farrell, 2001; Treaty of Rome). At the same time, steps were taken toward economic liberalization and the privatization of public enterprises, following the Thatcher and Reagan doctrines of the 1980s. Domestic and international investors were invited to buy shares of publicly owned organizations in the common stock market (Farrell, 2001; www.reference.com/spain, June 5, 2006). Telefónica is one of the most important semi-public enterprises that underwent a gradual process of privatization during that period. The government divested its interests in the company at three different times: prior to EC accession in 1985, after accession in 1987, and, finally, a total divestiture of shares in 1996. Before the second divestment, the Spanish government acted as the majority shareholder with about 40 percent of shares and with the power to appoint the chairman of the company. However, the private sector

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operating the company dictated policy because there was not a defined policy regulating telecommunications until the Ley de Ordenación de las Telecomunicaciones (LOT [Regulatory Law for Telecommunications]) was written in 1987 and enacted in 1988 (Sanz, 1999; Jordana, 2002). Sanz (1999, 94) indicates that the relationship between the state and the telecommunications sector was purely contractual. Telefónica provided services and regulated itself. This can be compared to the role that AT&T once had in the United States.4 González created better coordination between the public and private sectors of the company, yet there was still no clear governmental policy for either regulation or further development of the sector. Thus, Telefónica continued to operate as a monopoly in the Spanish market. In 1985, before the official date of accession to the EC, the government sold a part of its shares in local and foreign stock exchanges. This move was meant to help Telefónica capitalize and stimulate the privatization of public enterprises required for accession. Over 750,000 private minority shareholders bought shares, including foreign institutional interests, primarily from Germany, Britain, and the United States (Noam, 1992, 252; Telefónica, 2000). However, as Noam indicates, the government refused “to raise the ceiling on the amount of Telefónica stock that could be held by foreign interests from 25 percent” (1992, 253). Under Spanish law Telefónica is considered a strategic sector firm. This means that it could not be sold entirely or largely to any foreign interest (Noam, 1992, 253; Telefónica, 2000). The posts of secretary general of communications and director general of telecommunications were created in 1985 to oversee this strategic sector while ensuring minimal state intervention. The creation of these posts indicated a strong political will to shape the industry’s future according to EC standards and prepare the company for international competition.

The Regulatory Law for Telecommunications (LOT) In 1987, the Spanish parliament passed the Ley de Ordenación de las Telecomunicaciones, the first law regulating telecommunications in over seventy years. LOT reinforced the twin processes of divestment and restructuring of telecommunications (Jordana, 2002; Sanz, 1999; Telefónica, 2000). As the following passage suggests, it was created primarily to define the main terms of public regulation of this sector by marking clear distinctions between the functions of the public administration and the private operator (Telefónica, 2000; Sanz, 1999; LOT, 1987).

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La presente Ley responde a la necesidad de establecer, por primera vez en España, un marco jurídico básico en el que se contengan las líneas maestras a las que ha de ajustarse la prestación de las diversas modalides de telecomunicación, a la vez que se definan con nitidez las funciones y responsabilidades de la Administración Pública y de los sectores público y privado. This Law establishes, for the first time in Spain, a legal framework for delineating a blueprint under which different types of telecommunications would abide by law when providing their services. At the same time this blueprint clearly defines the functions and responsibilities of the Public Administration and that of the public and private sector (December 18, 1987/Law 31 [my translation]).

Some of the most important stipulations of this law were (1) the state would maintain the power to protect the sector and enforce the public service nature of telecommunications; (2) the state would promote research for technological development and economic expansion; (3) an advisory committee of telecommunications would counsel the government and establish criteria for a new contractual agreement between the state and Telefónica; and (4) the regulatory body would abide by all plans and recommendations of the International Telecommunications Union (ITU) and other EU organizations. These four points were significant in the context of Spain’s accession to the EC and in light of the major economic and regulatory shifts in Europe and the United States under Thatcher and Reagan during the 1980s. They reflected the urgency with which Spain had to adapt to a changing economic and political environment throughout the world. LOT anticipated Telefónica’s continued privatization and horizontal integration and the technological convergence that would allow the company to expand beyond telephone service and into content production and media distribution in less than a decade after its full privatization. In 1987, the government had divested itself of fifty-four million shares, making Telefónica the first non-U.S. telecommunications company with such a high volume of public shares in the international market. The total value of shares amounted to $350 million. Telefónica’s internal communication documents indicate that throughout the LOT period, the company took measures to assure its competitiveness in the near future and renegotiate a new contract with the state to replace the old one signed in 1946 (Telefónica, 2000). Telefónica’s capitalization through this large government divestment and the new regulatory policies assisted the company’s vertical and horizontal integration. Toward the end of the 1980s, Telefónica held interests in various manufacturing companies and telephone and cable service providers such as Amper-Elasa, SINTEL, TEFISA, TIDSA, and Cetesa (Noam, 1992). Telefónica first integrated vertically by participating in equipment manufacturing com-

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panies and, in the 1990s, began diversifying by purchasing shares in the largest television and radio networks in Spain such as Antena 3 TV and Radio Onda Cero. With the development of new technologies, Telefónica took the lead in adapting them to its advantage. At this point, Telefónica entered the complex and synergetic business of cable distribution, satellite television, and Internet service. In 1992, an amendment was added to LOT to promote the development and incorporation of digital technology into telecommunications. In 1995, the regulatory law was amended again to better suit technological innovation and provide a legal framework to aid the telecommunications sector in satellite use and cable distribution. The Ley 42/1995, 22 de diciembre, De Telecomunicaciones por cable [Law 42/1995, December 22, Cable Telecommunications] began regulating television, particularly the service of cable, Internet, and other digital multimedia. This law anticipated and adopted regulations that the EU would later impose in order to allow the entrance of new television and telecommunications operators in the Spanish market. However, the law actually protected Telefónica by ensuring that it had little or no competition. The law continued supporting the company’s virtual monopoly on telephony, cable, and new technologies. The Cable Law stipulates that only one new telecommunications provider could enter the market. Ironically, the Cable Law was supposed to be a response to the EC’s concerns about telecommunications monopoly. The EC outlined these concerns in the Green Book for Telecommunications in 1987. The main aim of this document was to create regulations that pushed EC member countries to break up telecommunications monopolies, opening the marketplace across member borders. Opening markets would pave the way for future market sharing, privatization of the public sector, and liberalization of national economies in what came to be the EU. Following EU regulations, Spain’s government finally divested itself entirely of its portfolio of shares in Telefónica between 1996 and 1997. However, it did not cease to protect the company through policy. By then, LOT was a successful law for the purpose of privatization and expansion of Telefónica. The EU also pressured new member countries to expand their international markets. In 1988, two years after accession, Telefónica began expanding in Latin American countries. Since the early 1990s, Telefónica has become a leading investor in Latin America, which is now its most important market (Bustamante, 2000; Chislett, 2003; Telefónica, 2000). In tandem with changes in Spain and Europe, during the1980s the United States and other lending countries were pressuring Latin American governments to embrace a new economic model and reform their political systems. These changes would affect the telecommunications industry as well as other key sectors.

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Latin America and the Lost Decade Spain and Latin America have shared many similar political and economic experiences throughout the twentieth century, although for different reasons. Spain due to the loss of its colonies and changes in the European political power scheme, and Latin America due to the legacy of colonization and the presence of a new power in the region: the United States. During the twentieth century both have struggled under authoritarian regimes and weak democracies. Both have been pressured to adopt political and economic changes, strengthening their democracies and liberalizing their economies, because of political and economic trends set by the United States and the EC/EU during the decades of the 1980s and 1990s. The impact of this new economic model, however, was not equally felt due to a major difference between these two regions. What set Latin America apart from Spain was its towering debt with international monetary agencies and the technological dependency created over time by lending nations promoting development while selling their advanced technology to these poorer countries. The tremendous fiscal deficit was the product of over three centuries of colonialism followed by a postcolonial era in which, despite political independence, Latin American countries remained under neocolonial economic domination from new powers in the region: the United States principally and, to a lesser degree, Britain. Spanish colonial rule and the devastation wrought by the wars of independence had left the region with significant social, political, and economic problems. In the twentieth century, the United States and Britain engaged in projects of modernization, resource extraction, and market expansion in Latin America. As newly formed Latin American governments borrowed money from the governments and lending agencies of the United States and Britain to finance development projects, they incurred enormous foreign debts that have resulted in ongoing financial crises. Additional consequences have been technological dependency, repeated internal political crises, a weakened middle class, and a massive exodus of population from rural areas to cities as people escape internal armed struggles or simply search for a better life. These maladies worsened throughout the 1980s as international financial agencies diminished or stopped lending money to these countries. The lending institutions began pressuring Latin American nations to pay their debts and change their internal dynamics, starting with a return to democratic life and then with the adoption of neo-liberal economic reforms (Molano, 1997; Weisbrot and Rosnick, 2003). However, the task of accomplishing both things at the same time was difficult since incipient democracies lacked political and economic strength domestically, and international private investors were wary

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of investing in these countries due to political instability. Further, local investors that had previously fled with their capital were reluctant to return during the 1980s, waiting until democracies and the economy seemed more solid. Molano (1997), Fraga (2003), Weisbrot and Rosnick (2003), and Green (2003) among a number of other social scientists and economists refer to the 1980s in Latin America as the lost decade. In a report for the Center for Economic and Policy Research, Weisbrot and Rosnick (2003) indicate that the income per person, the most basic measure of economic well-being, dramatically shrank from 1980 to 1989. The per capita GDP declined at an average annual rate of 0.6 percent during this period. Inflation and hyperinflation were commonplace in all countries. At the same time, bloated public sector enterprises were not able to perform efficiently and lost money. During the 1980s, several sectors were under state control as a result of previous decades of nationalization and protectionist policies. Telecommunications was one of these sectors. Perhaps second only to oil, telecommunications was considered a strategic and significant public sector. The media, on the other hand, tended to be private for the most part. However, in many countries the media was under strict government control due to authoritarian military regimes or because incipient democracies were frightened by potential opposition in the media. Thus, there was significant control and suppression of media content, production, and distribution, particularly of news. Television networks were centralized in capital cities and programming centered largely on imported American shows. Many countries had developed during the 1970s protectionist laws imposing quotas on television networks in order to curb the importation of content to stimulate local production. However, most of these policies existed only on paper since the economic crises in these nations did not allow networks to produce the percentage imposed by governments. The positive outcome of such policies in some countries was that they generated more regional trade of cultural products, diminishing the amount of imports from the United States. The countries that benefited from this were the largest content producers such as Brazil, Mexico, Venezuela, and Argentina. Television programs and films from these nations came to be primetime entertainment in smaller regional markets. Most economies in the region were considered closed due to their strong protectionist policies resulting from the era of import substitution industrialization (ISI) where governments sought to stimulate their national economies by replacing imports with nationally produced goods. The main strategies for accomplishing that goal were nationalization of key sectors and other industries and enacting import barriers and high tariffs. Although ISI was not adopted throughout the region in an even manner, it began to be implemented in some countries in the 1930s and became widespread in the region

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towards the 1960s, lasting pretty much until the end of the 1970s and early 1980s (Stillerman and Winn, 2006; Petrazzini, 1995). Up to a certain point, ISI seemed to work; however, the efficiency of national industries depended, ironically, on the import of capital in the form of loans and technology for the infrastructure and production development. After a period of time, many of these industries could not keep producing according to demand (Stillerman and Winn, 2006). Industries lacked both capital and up-to-date technology to remain competitive and soon became choked by their foreign lenders. Latin America’s economic and other social struggles generated an unstable political climate, which in the 1970s and 1980s reached particularly troubling levels. Some examples will help elucidate the social climate of the time. In the late 1980s and early 1990s, the people of Argentina were coping with the aftereffects of the cruel dirty war that had taken place from the mid1970s to the mid-1980s. In that war, over thirty thousand people, most of them young adults, either disappeared or were tortured or killed by the military. Peru, recently returned to democratic life in 1980 after twelve years of a military dictatorship, faced an immediate armed uprising from a Maoist group known as Shining Path. This internal war lasted until 1992, having a great impact on the economic, social, and psychological livelihood of the nation. Over sixty thousand people either disappeared or were assassinated or tortured by both the military and Shining Path. Peru also lost billions of dollars in infrastructure (CVR, 2003; Klaren, 2000). Between 1980 and 1985, the country was struggling to pay its external debt, which increased poverty exponentially. Between 1986 and 1991, the country entered into a moratorium and completely stopped payment on its debt. Like many other countries in the region, Peru became an economic and political pariah. There was almost no international flow of capital and local capital left the country, creating a situation of hyperinflation and recession not seen since independence. A similar fate was encountered by Guatemala, where an internal war dragged on for over thirty years, reaching its peak during the 1980s. A reactionary military regime, supported by the upper class, waged genocide against the indigenous population under the guise of fighting communism. The pattern was repeated in El Salvador and Honduras where long internal wars reached their peak moment with massive killings during the 1980s. Many other countries experienced similar political situations to a greater or a lesser degree, including Nicaragua, Bolivia, and Colombia. The Latin American countries that were perhaps the most politically stable and experienced the least internal political upheaval during the lost decade were Brazil and Mexico. Although these two countries were not engulfed by widespread state terror and armed conflict as in the previous examples, they still suffered severe mon-

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etary devaluation and economic stagnation similar to the rest of the countries in the region. In the late 1970s and early 1980s, Chile had already been experimenting with the new economic model that international lending agencies were urging other countries to adopt. These economic changes were implemented under the military dictatorship of Augusto Pinochet, who is well known as heading a country with the worst record of human rights abuses in South America (rivaled only by Argentina). During the 1980s, the Chilean economy was open to the international market, and the government reversed the nationalistic and protectionist policies implemented by the former socialist government of assassinated President Salvador Allende. However, Chile was not immune to Latin America’s general malaise when in 1982 its economic growth began to stall, creating a tense social and political moment where Pinochet’s mano dura [hard hand] violently suppressed popular demands for better economic and social conditions. Within this context of chronic and acute political and economic strife, these Latin American nations could not engage in developing or securing industries that would generate national income and increase the standard of living. While Latin America was experiencing a lost decade, Spain was implementing social, economic, and political reforms that would allow it to exert new types of influence in Latin America. Already solidifying its democracy and its place in Europe, Spain set up a foreign policy oriented toward strengthening its cultural and economic ties to Latin America by encouraging deeper political dialogue, establishing solidarity with anti-authoritarian and democratic movements within Latin America, and taking part in conflict mediation, particularly in Central America. It also created some economic agreements, including low rate loans and private investment and aid (Grugel, 1991; AECI, 1991; Chislett, 2003). Leading up to 1992, Spain’s foreign policy revolved around preparations for the upcoming celebration of the Quinto Centenario [fifth centenary of the “discovery” of the Americas]. In conjunction with this event, the Spanish government instituted a series of cooperative programs with several Latin American countries, which helped to foster an ideal environment for Spanish investment. On the domestic front, Spain took measures to privatize public sector enterprises that with enough capitalization would be able to expand operations in the Latin American marketplace. Although several former imperial European powers such as Britain, France, and the Netherlands have maintained a significant political, military, or economic presence in their ex-colonies, Spain did not, primarily due to its economic downfall. However, after accession to the EC/EU the Spanish government and investors sought to rearticulate Spain’s relationship to Latin

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America. They replaced the colonial notion of madre patria [motherland] with that of hermandad [brotherhood], in a sense painting over the colonial past established through centuries of domination. This new rhetoric, apparently promoting an equal exchange, continues to support an unequal relationship. Spain acts as the senior partner not only because the relationship rests on the historical connection of an ex-imperial power with its former colonies, but also because the Spanish government and Spanish private investors have the economic power. They decide when, where, how, and in what to invest, setting the terms or influencing internal policies that will favor first their interests and second those of the hosting countries. Why have Latin American nations allowed Spain to regain an economic foothold in the latter part of the twentieth century? In the context of the Cold War, Latin American popular animosity was directed at the United States as this country exercised the strongest political, economic, and cultural influence in the region. Before and during the lost decade this sentiment further grew due to two main factors: U.S. foreign policy, which sponsored brutal regimes in the region with the most horrendous human right violations, and World Bank and IMF lending and payment policies that were choking these nations. At the worst moment of the crisis, Latin America was still transferring money to these institutions. A report from CEPAL (as analyzed by Green, 2003) indicates: From 1979 to 1981 capital flowed into Latin America at an average of $13 billion a year. By 1983, Latin America had started to export capital for the first time in decades. The transfer of wealth from the poor countries of Latin America to the institutions of the rich first world went on until 1991, a net flow of $218.6 billion (78).

Furthermore, toward the end of the 1980s, and particularly with the fall of the Berlin Wall and the triumph of capitalism, United States investors, the World Bank, the IMF, almost all Western European governments, and EC/EU private investors focused increasingly on the newly open countries of Eastern Europe. This created a vacuum in the Latin American region. At the time, Spain was not interested in competing with bigger powers on its own continent and instead looked to its former colonies, returning as a new investor in the region at the close of Latin America’s lost decade.

The Latin American Marketplace As in many regions of the world, telephony arrived to Latin America in an uneven manner. For the most part, at the end of the nineteenth century and throughout a big part of the twentieth, ITT was the primary company oper-

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ating through subsidiaries in the Latin American market. The British too had some concessions, but over time and in particular during World War II, ITT bought most of Britain’s telecommunications interests in Latin America, expanding its empire regionally to twenty-two Latin American countries. Just as in Spain, Latin American governments perceived the telephone as an item of modernity and development. However, without enough capital and technological infrastructure most governments sought to license to local and foreign private companies who would bring in capital and technology in exchange for security in the marketplace. Similar to Spain as well, in most of these countries ITT gained a stronghold in telecommunications due to political and economic maneuvers, offering more capital than the local operators, better technology, and the ability to meet demand. We can say that telecommunications developed in the region during the first half of the twentieth century mostly through ITT’s subsidiaries and with the help of a few local private enterprises. During that period of time, the majority of the population did not have access to a telephone. This lack of access appears in the arbitrary tending of lines, which covered only certain geographic areas, mainly developed urban settings. Furthermore, even in cities, the telephone was not part of every household, and for most of the twentieth century the middle and upper classes, government, and businesses were the exclusive users. The working masses and the urban and rural poor could only dream of owning a telephone. The harsh social, economic, and geographical divisions in Latin American countries influenced the manner in which telephony expanded and was adopted. Naturally telecommunications companies regarded cities as the optimal markets because it was easier and less costly to tend lines than in rural areas. The expansion of lines to rural areas implicated extreme investment, and in many cases the geography or terrain would simply not allow the tending of lines. Another aspect is that in most Latin American countries before the 1950s and 1960s a large part of the population was not only poor but lived in towns, villages, or isolated communities in the high reaches of Andean and Central American countries or dispersed throughout the Amazon. These geographies have been a challenge for telecommunications. In fact, until the arrival of wireless telephony at the close of the twentieth century and beginning of the twenty-first century there were still a substantial number of people who had never seen a telephone in their lives. ITT’s subsidiaries and other local private companies were not interested in investing in these more rugged areas where people could not afford the service at a price where the margin of profit was not substantial. The concept of universal access was not an option. In the second half of the twentieth century, as political and economic changes swept the region and the adoption of ISI intensified, telecommunications companies were nationalized. ITT’s subsidiaries

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or other local private telecommunications became fully or partially operated by the state. However, despite the good intentions of protectionist and populist policies in most of these countries, telephone service remained below demand and for the most part inaccessible to rural inhabitants and the poor. Throughout the years, new technological advancements were adopted, such as satellite use, which made it easier to place national and international phone calls, receive long-distance television transmissions, and obtain other telecommunications services. Demand for telephone service continued to outpace supply as internal migration extensively occurred throughout the second half of the twentieth century, the population grew, and social mobility arose in urban areas. Customers, however, had to wait in some cases several years to obtain a home line and tariffs for installation were so high that some families treated the acquisition like an investment. This situation made the Latin American marketplace one of the less penetrated markets in the world in terms of telephony, thus, making it a desirable place for exploitation for any company with the capital and technological means, such as Telefónica. Telefónica and several other Spanish investors considered the Latin American marketplace and the Hispanic market in the United States as mercados naturales [natural markets] (Bustamante, 2000, 299; Telefónica, 2000; www.telefónica.es, 2004) based on the old imperial ideology of “the ties that bind” due to a common language, and Spain’s historical, political, social, and cultural influence in these countries throughout previous centuries (Baklanoff, 2002, 23; Anna, 1998). Currently, Telefónica and its subsidiaries operate in Chile, Argentina, Peru, Brazil, Venezuela, Puerto Rico, Colombia, the United States, Mexico, El Salvador, Guatemala, and other smaller Central American nations. Telefónica’s tendency has been to expand within these markets as well as spread outward toward others (Bustamante, 2000; www .telefónica.es; Chislett, 2003). Telefónica’s geographical expansion, economic growth, integration, and diversification are directly related to Spain’s accession to the EC. The socialist government of Felipe González considered the role of the state as that of protector of public services, including telecommunications. Even as the state divested its shares, the government continued to take responsibility for protecting this Spanish industry and its national market.

Deregulation in the EC/EU and Telefónica’s Total Privatization Most Western European telecommunications enterprises have traditionally been public or semi-public, and in most cases they have held a monopoly in

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their local markets. As we have seen, this was the case for Telefónica; but it has also been true for British Telecom, France Telecom, Deutsche Telecom, and Belgacom, among others. European governments have generally considered it an obligation to provide the public with certain basic services, and since its invention, the telephone has been one of them. One of the main reasons governments have been directly involved in telecom enterprises in Europe is the large initial expenditure required to set up a telecommunications operation, which not only required monetary capital but also access to raw materials for building lines and equipment. Another reason for the involvement of governments in telecommunications has been the knowledge that this is a key sector for national security and for national economic development. During the 1980s, however, economic and political changes and the convergence of technologies challenged the characteristics of public service and the monopoly of state-run telecom enterprises in most EC member nations. Telecom has always been politically and economically significant to these governments, but in the 1980s, communications became economically important in ways it had never been before (Dyson and Humphreys, 1990). Governments wanting to attract domestic and international investments saw the need to sever their traditional ties to these industries and drop some regulatory controls in order to aid the expansion of their telecommunications industries combined with others. Under the conservative government of Margaret Thatcher in the 1980s, the British were the first to deregulate telecommunications and other industries (Dyson and Humphreys, 1990; Shaw, 1998). Western Europe needed to respond to the technological revolution going on in the United States and its effects on the political and economic environment of the Reagan era. For many policymakers in Western Europe, this deregulatory process was seen as most likely to benefit U.S. interests. However, as different technologies converged, demand for access to these technologies, equipment, and information grew internationally. In the end, both the pressure from the United States to expand markets in Western Europe through mergers and the responsibility of Western European governments to keep up with the technological revolution and its benefits seemed to entail the inevitable process of liberalization and privatization (Dyson and Humphreys, 1990; Shaw, 1998). For many governments, liberalization presented itself as a way out of economic stagnation and recession because it would open markets for competition and create space for smaller companies. Margaret Thatcher implemented an “enterprise culture in Britain composed of self-reliance through deregulation and privatization” (Dyson and Humphreys, 1990, 7). Britain came to be “the engine of deregulatory change in the European Union” (Shaw, 1998, 158). Responding to the competitive environment that was beginning to form in

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the region, Germany, Italy, France, and other EU members gradually began to follow the trend. Spain also jumped on the liberalization bandwagon. In 1985, the government followed EC trends and sold half of its Telefónica shares. In 1987, the EC introduced its program to further deregulate telecommunications with a document known as the Green Book. This document, drafted by the EC Commission, set in place liberalization policies that were meant to aid the dissolution of national monopolies (Telefónica, 2000). However, the Spanish government was not yet ready to divest entirely of its holdings in telecommunications and other major public industries. In the early 1990s, the Spanish economy stagnated and the country entered a recession. Spain still lagged behind other Western European countries both economically and technologically. It seemed that accession to the EC did not deliver the anticipated economic and social cohesion with the rest of Western Europe. Dissatisfaction with the socialist government of González was reflected in the fact that in 1993 José María Aznar from the conservative Partido Popular (PP [Popular Party]) won the presidential elections. Aznar pledged support for further neo-liberal reform and accelerated the process of privatization throughout his presidency. Under Aznar, Telefónica became fully privatized. Parallel to Aznar’s neo-liberal policies, the EC was preparing to become the European Union (EU). Striving for economic convergence, the EU created a single currency, the euro. This monetary change would further unify the member countries of the former EC. However, being a member of the EC did not necessarily mean that a country would automatically be a member of the European Union or share its proposed monetary union. EC council members drew up the Maastricht Treaty, which set the Euro-zone criteria (Basabe Llorens, 2003; www.europa .eu.int, June 7, 2005). Under the criteria, member countries were obligated to adopt neo-liberal policies by which the role of the state would be diminished and international trade expanded, promoting the growth of their national economies. Under Aznar, the Spanish government initiated a more aggressive economic liberalization of its economy and reduced the size of the public sector to fall in line with the economic convergence about to take place in Europe. Based on the Maastricht Treaty, convergence was now defined in terms of certain macro-economic variables of public finances. This meant that the Spanish government needed to divest all remaining shares in its still semipublic telecommunications industry. In 1996, the government sold its remaining 20.9 percent holdings in Telefónica (Irazusta and Llorente, 1997). The interesting aspect of this privatization is that the Spanish government still holds an acción de oro [golden share], which allows the state to veto the pur-

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chase of large percentages of the company by new investors or current shareholders. This is to prevent hostile purchasing of shares by other large corporations, particularly foreign ones (Irazusta and Llorente, 1997). By keeping a golden share, the Spanish state secures Telefónica’s strategic position in Spain and abroad. However, having held a telecommunications monopoly in Spain for almost seventy years, Telefónica was not likely to lose its place in the Spanish market regardless of new local or foreign operators. Its incumbent nature has given Telefónica significant advantage over any other competitor; this is particularly true for fixed line service. The divestment of all but the golden share provided Telefónica with enough capital to invest heavily in Latin America and diversify into related industries, such as media. Telefónica investments in Latin America came at a crucial moment when governments were adopting neo-liberal policies and selling state-run telecommunications enterprises in that region. Thus, in a short time Telefónica had become the major telephone operator in Latin America, replacing state monopolies. Adding to this power, its investments in media and digital technology in Latin America and other world regions have allowed Telefónica to gain a privileged position among global telecommunications corporations.

Conclusion It is hard to say whether or not this expansion would have been possible had Spain not become a member of the EC/EU. It is clear, however, that a confluence of Spanish foreign policy and wider market forces have given the Telefónica the impetus to cross the Atlantic. Although the state is no longer a shareholder in the company, it remains its principal overseer and protector through its golden share, which allows the government to veto the purchase of a large number of shares by foreign investors. Despite its current private nature, Telefónica is still considered a company that pledges to operate in the best interests of the public and its nation. The company continues to enjoy government support through a foreign policy tailored to promote international agreements that will ultimately benefit it. However, its relation with the public has become purely commercial, and, in fact, it often acts against public interest because it operates almost as a monopoly in major markets. Political and economic transformations in both Spain and Latin America in recent decades have had profound effects on the telecommunication and media sectors. The following chapter will discuss Telefónica’s corporate structure from the 1990s to the present, looking specifically at how it has expanded its operations in Latin America.

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Notes 1. Access to the full text of the Treaty of Rome can be found online at several sites. Consult, for example, www.europa.eu.int/abc/obj/treaties/en/entoc.htm. This is an official site for EU primary documents. See also (a) www.hri.org/docs/Rome57/, and (b) www.lib.berkeley.edu/doemoff/gov_eugde.html. (The library at the University of California at Berkeley is an official depository of EU government documents and all of them can be accessed digitally.) 2. See Treaty of Rome and Maastricht Treaty. Accessible at http://europa.eu.int/en/ record/mt/top.html. 3. More on normalization of international relations can be found at http://www .sispain.org, a service of the Casa de America, Centro de Información y Documentación at the Palacio de Linares. 4. See N. R. Danielian’s AT&T: The story of industrial conquest (1933).

4 The New Telefónica

1990S, TELEFÓNICA ENTERED the Latin American market, solidifying its presence as the world’s leading telecommunications company in the Spanish- and Portuguese-speaking world. This chapter discusses Telefónica’s corporate structure at the tail end of the twentieth century and the beginning of the twenty-first, focusing on the period between 1996 and 2006. During this time, the company became fully privatized and took off as an international player in the telecommunications and media world, furthering its vertical and horizontal integration and synergetic behavior. This chapter describes how Telefónica became a global corporation in a relatively short period of time, running direct operations in over sixteen Latin American countries and indirect operations in over forty countries throughout the world.

I

N THE

Corporate Profile In June of 1988, the board of directors changed the company’s original name, Compañía Telefónica Nacional de España (CTNE) to Telefónica de España S. A. Nearly ten years later, in April 1998, they changed the name again to Telefónica S. A. (Bylaws, 3). Dropping the words “de España” [of Spain] from the official name allowed the company to brand and universalize its name to fit all markets where the company was expanding. This makes it possible to adjust the name of the company in the different countries where it operates, creating the illusion that the company is indeed local and perhaps even pseudonational. For example, in Argentina it is called Telefónica de Argentina; in Peru, — 57 —

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Telefónica del Peru; and, most recently, in Chile, the Compañia de Teléfonos de Chile has changed its name to Telefónica Chile. In many other parts of the world, the company is identified simply as Telefónica. Telefónica’s world headquarters are located at Gran Via 28 (Madrid, Spain), the same building in which it was originally founded as CTNE in 1924. According to Telefónica’s bylaws (9), the board of directors may change or move the headquarters as long as they remain within Madrid’s city limits. Telefónica’s objectives are the delivery and operation of any and all kinds of public or private telecommunication services, including net, lines, satellites, equipment, items of technical infrastructure, hardware, software, and any other future telecommunications technologies on the horizon not yet created. Telefónica is also dedicated to the delivery and operation of ancillary or supplementary products and services that stem from communications activities, including radio, film, television, music, publishing, data transmission, and Internet content. All of these activities may be carried out both in Spain and abroad (Bylaws, 2002 and 2006). As the company became fully privatized, its bylaws were amended to promote foreign market expansion and synergy. The company is currently targeting an extremely diverse international market, with its most important foreign markets located in Latin America and the Caribbean. Telefónica’s success in this region is linked to the ways in which it has taken advantage of global opportunities, political environments, and economic downfalls of state run enterprises in these developing countries. Other world regions where Telefónica has a presence are Eastern and Western Europe, Asia, and Africa. However, outside Spain, Latin America is by far its largest and most important market at the moment. Beginning in the late 1990s, as part of the full privatization of the company and its subsequent global expansion, branding has become a major part of Telefónica’s corporate development. As indicated in its 2002 corporate responsibility report “Telefónica’s brand can be defined as a valuable strategic asset which conveys the Company’s value statement; a symbol that can be readily identified by all our stakeholders and which creates value for the business” (14). This strategy has been used to help transform the company’s image from a domestic, semi-public entity into an aggressive and ubiquitous global corporation. In its 2002 annual report, Telefónica estimated its brand’s intangible assets at approximately 16.6 billion euros; by 2007 it was estimated at 20.7 billion euros (Audit Report, 2006).1 Telefónica’s annual report of 2002 indicated the company’s aspiration to become one of the world’s ten most valuable brands, alongside giants such as Coca-Cola, Microsoft, IBM, Disney, McDonald’s, and Mercedes. Gregory (2004), Holt (2004), and Docters (2004), among others, discuss the corporate phenomenon of branding. Corporations need to brand not only the

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products they sell but also themselves as corporations, so that clients and potential consumers directly associate the product with the corporation without considering alternatives. Discussing Disney as a brand, for example, Wasko (2001) points out that changing a corporate name into a brand creates an effect where the “presence of the word ‘Disney’ is sufficient to produce routine, unthinking consumption, in the same way that brand loyalty supposedly means that people buy Ivory soap regardless of similar soaps offered for lower price” (17). Similarly, Telefónica creates demand through substantial marketing of its master brand image, which works in conjunction with each of the group’s subsidiaries such as Movistar, Terra, Atento, Adquira, Emergia, and others. This is particularly true in Spain and Latin America, where the brand Telefónica is widely recognized and permeates daily life in the form of home, mobile, and public telephones, telephone calling cards, Internet, and cable TV service. Telefónica’s brand appeal centers on both functional and emotional aspects. The functional concepts of leadership and innovation (Corporate Identity, 2006) serve to position the company as the leader in telecommunications. It brands itself as the best and only provider of all the latest technologies in the form of accessible communication tools for its clients. The emotional concepts draw on notions of proximity and commitment (Corporate Identity, 2006).2 The company markets itself as being close to consumers, fulfilling their everyday needs for communication, and committed to offering the best service in both urban and rural areas. These attributes are meant to give investors the sense that they own shares in a company committed to the societies in which the company operates. At the same time, they give consumers the feeling that its products provide them advantages over other company’s products. The brand is represented by a simple logo with the word Telefonica. The Spanish accent over the o has been dropped, just as of Spain had previously been deleted. Dropping the accent creates a linguistics advantage, so that the word, Telefonica, can fit virtually any world language spelling and pronunciation. Telefónica uses two distinctive colors, bright blue and bright green. Usually the blue serves as the background for the word Telefonica, which is written in green with simple cursive lettering. The blue and green logo is ubiquitous on buildings, billboards, telephone booths, calling cards, phone card street vendors’ attire, as well as newspaper stands where Telefónica calling cards and glossy cable TV guides are sold. This simple logo is the same in all countries where Telefónica operates, giving the company an aura of continuity, familiarity, and naturalness. This degree of corporate uniformity extends to the web, where Telefónica’s sites share

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the same layout, color scheme, and basic information. The Telefónica brand and its commercial products have worked their way into peoples’ daily talk: For example, in Peru, when purchasing calling cards people use the term 147, referring to a Telefónica product, even as competitor cards are widely available. Telefónica’s brand marketing focuses on giving consumers a sense of having the upper hand in business, of connecting deeply with family and community, of being technologically cutting edge, and of living a more fulfilling life.

Ownership and Corporate Structure Telefónica’s ownership and corporate structure facilitate these branding practices, ensuring that the company projects a uniform image globally. According to its annual reports as well as reports submitted to the Servicio de Compensación y Liquidación de Valores (S.C.L.V.) and the Securities and Exchange Commission (SEC), there is no single owner of the corporation and no individual person may exert direct or indirect control over Telefónica. In 1996, after the government sold its remaining stakes, two of the largest Spanish banks became primary shareholders: Banco Bilbao Vizcaya Argentaria (BBVA) and La Caixa. They both maintain the company’s strategic, permanent capital. According to the 2006 annual report (45) BBVA owns 6.43 percent and a total number of shares of 316,764,189. La Caixa owns 5.08 percent and a total number of shares of 249,981,747. As of 2008 these numbers have not changed much. These two banks have direct representation through their former executives, who now serve on Telefónica’s board of directors. This board, its chairman, executive committee, and CEOs run the company and its subsidiaries. According to the bylaws, the board of directors must be composed of a minimum of five members and a maximum of twenty. As of 2007, the board of directors had nineteen men,3 headed by Chairman Cesar Alierta Izuel. There are two vice-chairmen, Isidro Fainé Casas representing La Caixa and Gregorio Villalabeitia Galarraga representing BBVA. 4 In accordance with the rules of the board of directors, the company’s board members are divided into three groups: (1) board members with executive functions within the group; (2) board members representing primary shareholders La Caixa and BBVA; and (3) independent board members. Members of the board of directors are elected for five-year terms by the general shareholders. These members may be reelected for one or more terms. The board must be composed of people who have been shareholders for at least three years before their appointment. Members of the board of directors must own a number of shares representing a value of no less than three thousand euros and may not divest their shares while serving their term (Bylaws, 2000 and 2006).

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Although individual board members have fewer shares than the banks, their shares and position on the board of directors allow them to influence the direction of the company in significant ways. The total number of shares owned directly by board members and CEOs as of 2006 amounted to 2,321,898 of the social capital (Annual Report, 2006, 45).5 Allowing key executives to hold individual shares creates a balance between loyalty to the company and self-interest, assuring that top executives will attempt to run operations in the best and most effective way to enlarge financial gain for themselves and everybody else connected to Telefónica. Telefónica’s management body is divided into two categories: the corporate management team, composed of the executive chairman and directors; and the activity lines or areas of business, composed of the CEOs of each line as presented in tables 4.1 and 4.2.

TABLE 4.1 Management

Name

Position

Corporate Management Team César Alierta Izuel Antonio Alonso Ureba Luis Abril Pérez Calixto Ríos Alfonso Alonso Durán Francisco de Bergia Santiago Fernández Valbuena Guillermo Fernández Vidal Alberto Horcajo Aguirre Luis Lada Díaz Oscar Maraver Javier Nadal Ariño Ángel Villa Boix

Executive Chairman General Secretary Corporate Communications Director Auditing/Resources Director of Planning Deputy to the Chairman Director of Finances Director of Subsidiaries Director of Resources Director of Development Director of Human Resources Director of Public Relations Corporate Development

Activity Lines Julio Linares José Maria Álvarez Pallete Antonio Viaña Baptista Javier Aguilera Arauzo Kim Faura Joaquin Agut Luis Blasco Pedro Villar Iraumé Eduardo Caride

CEO Telefónica Spain CEO TISA, Latin America CEO Telefónica Mobile CEO TPI CEO Terra Networks CEO Endemol CEO Contenidos CEO Atento CEO Telefónica Data

Source: www.telefonica.es, 2004–2005

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Chapter 4 TABLE 4.2 Subsidiaries and Activity Lines of Business

Name

Description of Service

Telefónica Spain Telefónica Mobile T. International (TISA) T. Contenidos Telefónica Datacorp Terra-Lycos Atento Adquira T. Publicidad (TPI) Emergia Group

Wire-line telephony and related services provided in Spain Cellular telephony centralized in Spain and abroad Wire-line telephony, primarily Latin American market Interests and subsidiaries in media and entertainment Integral provision of corporate data transmission IPS, home and business; Content and Internet portals Call center activities Business to business service Telephone directory in Spain and Latin America High-speed fiber optic network operation with connections within Latin America and Europe, and from Latin America to Europe and the United States

Source: Telefónica’s Annual Report 2002

Telefónica also creates strategic alliances with global corporations by participating in other telecommunications groups. In 1996, for example, Telefónica was part of Unisource, a communications company producing discount calling cards. Through its participation in Unisource, Telefónica was linked to Dutch company KPN, Danish company Telia, Swiss company PTT, and U.S. giant AT&T. Telefónica’s connection to AT&T allowed it to participate in World-Partners (Curwen, 1997) at that time. Through World-Partners, Telefónica has been connected to telecommunications providers such as Japan’s KDD, Singapore Telecom, Telecom Malaysia, Korea Telecom, Australian Telstra, Philippines Long Distance Telephone, Hong Kong Telecom, Telecom New Zealand, Canadian Unitel, and Bezeq Israel Telecom (Curwen, 1997). In 1997 Telefónica left Unisource to become part of Concert, a joint venture of BT and MCI. Concert provides services in voice and data links, billing, worldwide conferencing service, and discount calling cards. At that time, Telefónica became the exclusive agent for Concert in Spain, Latin America, and the growing Hispanic market in the United States (Curwen, 1997). All of these direct and indirect partnerships have allowed Telefónica to hone its image and global presence. In a short period of time, Telefónica has almost doubled its world presence and workforce. In 2002 the company reported operations in sixteen countries and indirect presence in about forty countries. That same year, it declared a total of 161,526 employees worldwide (Annual Report, 2002). By 2006, it operated in twenty-three countries and indirectly in over forty countries,6 and employed 233,000 workers around the world (Annual Report, 2006). Cur-

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rently, it trades common shares in stock markets all around the world: Madrid, Barcelona, Bilbao, New York, Lima, Buenos Aires, London, Paris, Tokyo, Frankfurt, Sao Paulo, and SEAQ International of London (Annual Report, 2002; Chislett, 2003). According to a communication filed with the National Stock Exchange Commission, as of May 13, 2004, the Chase Manhattan Bank acted as depository, holding a 9.91 percent stake in Telefónica´s capital stock on behalf of individual investors. Similarly, Citibank held 219,795,849 shares that represented 4.43 percent of Telefónica’s stock capital. That stake is held as established in the depository agreement granted between Telefónica and Citibank on behalf of the holders of American Depository Receipts (ADR) traded on the New York Stock Exchange and the Stock Exchange of Lima-Peru. According to information obtained from Servicio de Compensación y Liquidación de Valores (S.C.L.V.), as of April 2004, the number of Telefónica’s shareholders, both individuals and participant firms, was approximately 1,652,494. In April 2007 it was 1,765,599. Although Telefónica’s stock ownership is spread among different world stock markets and between a great numbers of stockholders, it is actually a small group of people who are majority shareholders and have decision-making power. Ultimately, decisions for market expansion, investment in new assets, and sale of others, is decided at the executive level. Since 2005, Telefónica has been primarily investing to expand its core assets of fixed telephony, mobile and Internet, while selling some of its media properties originally purchased under the executive direction of Juan Villalonga at the end of the twentieth century. Apparently, Telefónica has not been entirely successful with its media production outlets, Endemol being the most significant in the group. Endemol was sold in May 2007. Immediately following this sale, Telefónica bought 23 percent of Telecom Italia, enough stake to control the company and designate the management team. With this purchase, Telefónica marked the return to its core business of telecommunications and, to a certain extent, the abandonment of its role as media content producer. However, it remains one of the largest European and Latin American content distributors via digital television, cable, and most recently mobile telephone television service. At the same time, it partners up with content producers in the production of programming but without owning shares in the producing companies.

Assets in Different World Regions and Countries Fixed-line, mobile telephone and Internet services are Telefónica’s core assets. In the Americas, Telefónica operates in Argentina, Peru, Brazil, Chile, Ecuador, Colombia, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Costa Rica,

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Dominican Republic, Panama, Puerto Rico, Uruguay, Venezuela, Canada, and the United States. In Europe, it operates in Austria, Belgium, the Netherlands, Ireland, Spain, Portugal, Italy, the Czech Republic, Slovakia, the United Kingdom, Germany, and Switzerland. In Africa, it operates directly in South Africa and Morocco. In Asia, it operates in Japan, China, and Korea. Through different partnerships it operates in several other African and Asian countries. The region that provides Telefónica with the most revenue is Latin America, which generates about 45 percent of the company’s total income (Annual Report, 2006). Its market penetration has grown exponentially in less than ten years, particularly in the area of cellular telephony. In 2001, the company had 44.9 million fixed line customers and 32.2 million mobile users worldwide. With its 2004 purchase of Bell South’s 100 percent wireless assets in Latin America, the company expanded to serve over one hundred million customers worldwide. At the time of the purchase, it projected that it would have 62.5 million mobile telephone customers (a 22 percent rollover from Bell South) and 43.9 million fixed line customers. Of these fixed lines, 21.6 million were in Latin America and the remainder in Spain (Annual Report, 2003, 15). By 2006, these projections had been dramatically exceeded. In 2006, Telefónica had become the world’s third largest telecommunications company in terms of number of customers: a total of 203 million clients worldwide, about 145 million of whom were mobile users and 42.3 million who were fixed line users. Broadband and cable television customers made up the remainder of Telefónica’s customers (Annual Report, 2006, 15). There is no doubt that these numbers will keep growing, particularly for mobile telephony, as this technology becomes further widespread. Telefónica arrived in Latin America in the early 1990s, just as Latin American governments were beginning to privatize their telecommunications systems. The Spanish company gained bids that allowed it to be the main telecommunications provider for several years before other companies could enter to compete in the market. This early and monopolistic arrival has given the company an advantage over competitors such as Bell South, TIM, France Telecom, and Nextel. Throughout the 1990s, Telefónica has been able to entrench this incumbent position, allowing it to efficiently compete with other European and U.S.-based companies, and in some cases, like Bell South, take them out of the market. Despite large investments, these other companies have not been able to develop a strong and ubiquitous presence in Latin America compared to that of Telefónica. Telefónica’s unprecedented transnational expansion presents a serious challenge to local telecommunications regulatory policies aimed at promoting competition, fair tariffs, and universal access to service. This is of particular concern in Latin America, where these regulatory policies exist on paper but

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are seldom enforced by governments. Latin American governments have failed to create an environment where local and foreign companies have equal chances to enter, compete, and remain in the market. When state run telecommunications companies were privatized across the region, Telefónica was granted in most cases an exclusivity period under the excuse of needing to improve the telecommunications infrastructure. This allowed Telefónica to establish and control the core telecommunications grid. Hence, even as the exclusivity period came to an end, it was too late to create an environment of genuine competition. What we see today are either duopolies or oligopolies in which Telefónica remains at the top.

Revenues Telefónica’s principal source of revenue outside of Spain is Latin America. The earnings in this region represent over 45 percent of the total income for its telephony operations. In 2001, the total combined revenue for fixed line services between Telefónica Spain and Telefónica Latin America amounted to a net worth of 20.35 billion euros ($23.12 billion); 40 percent of this sum was generated in Latin America (Annual Report, 2001, 29). Despite slowing economic growth at the turn of the twenty-first century and particularly the economic collapse in Argentina in 2001, Telefónica has still been able to remit significant revenues to Spain. As of 2008 about 45 percent of revenue continued to be made in Latin America. Table 4.3 presents the economic growth of Telefónica between 1998 and 2001. The second line represents Telefónica’s revenue in Latin America. It shows that between 1998 and 2000 revenues have more than doubled. This dramatic increase coincided with Brazil’s privatization of its state-run telecommunications enterprises. It is worth noting that when Telefónica acquired the Sao Paulo facility, it took hold of Brazil’s largest national market. TABLE 4.3 Revenues

(Millions of euros)

LL* TISA* T.M.* Total

1998

1999

2000

2001

5,599.97 5,367.48 2,812.85 13,780.3

5,518.81 9,708.79 3,739.97 18,967.57

4,831.84 12,583.82 5,249.19 22,664.85

4,658.23 10,137.37 8,408.02 23,203.62

*LL: land line Spain, TISA: T. International (Latin America), TM: T. Mobile Source: Telefónica’s Annual Report 2001

Average Growth 1998–2001(%) (6.0) 23.6 44.1

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Brazil provided the company with an immediate boost in revenues as well as one of the largest untapped markets in the region. Although at first glance it would appear that revenue was lost in 2001 (due to Argentina’s economic collapse), overall Telefónica’s revenues increased by one billion euros due to the growth of mobile telephony in both Spain and Latin America. By the end of 2006, the company reported having eighty-three million mobile phone customers in Latin America alone. At the same time, fixed line consumption continues to grow, but at a slower pace than wireless. In 2006, the company reported twenty-three million fixed lines in Latin America, close to half of its total number globally. In 1998 former Telefónica Chairman Juan Villalonga told CNN, “Well, we are—we believe that Latin America is the most attractive emerging market today, and for sure will be the market of the next century.”7 Indeed, Villalonga’s assessment has proven to be true. Latin America has about five hundred million potential customers. In 2006, this huge market had produced 18.09 billion euros for Telefónica (Annual Report, 2006, 19). Further, revenues are likely to increase as more people and businesses adopt not only cellular telephony but also other services such as broadband for Internet, cable television access, and media access via mobile telephones.

Telefónica’s Arrival in Latin America For any Spaniard, Latin America is the prolongation of our own land. Our peoples have the same language and the same culture. There are great opportunities for us to do business together (Cándido Velázquez-Gaztelu, 1990).8

Chairmen Cándido Velázquez-Gaztelu (1989–1996) and Juan Villalonga (1996–2000) are responsible for Telefónica’s initial global expansion, particularly its conquest of Latin America. They speak of this part of the world and its people as a natural market. They posit this relationship based on historical ties, common language, and cultural affinities. When the historic past is conjured to rationalize present practices, colonialist ideologies are at work. Although this contemporary rhetoric embraces the concept of mutual benefit, for the most part Latin American countries do not have the upper hand in these new relationships forged with the Spanish government and private enterprises. The new ties between Spain and Latin America are clearly unequal, as they are based on a creditor-lender scheme developed through direct investment, credit, and technological assistance. According to Chislett (2003) Spain has become the second largest investor in Latin America, closely following the United States. Among EU members, Spain is the leading investor in Latin

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America. Among those Spanish investors, Telefónica has the largest investments in the region, with nearly seventy billion euros invested since the company’s arrival in 1990 (Annual Report, 2006). Molano (1997) points out that privatization has been implemented across different sectors, but that the telecommunications sector stands out as the most active sector because of its rapid transformation from government control to private ownership. A 2003 study by Peruvian Organismo Supervisor de Inversión Privada en Telecomunicaciones (OSIPTEL)9 analyzes the process of telecommunications privatization in Latin America. It notes that the first country to adopt privatization measures in order to capitalize the sector in the late 1980s was Chile. In 1990, Argentina and Mexico followed. Venezuela privatized its telecommunications sector in 1991. Later, Peru (1994), Bolivia (1995), Panama (1997), and Brazil (1998) continued the trend. Prior to privatization, these national enterprises operated as vertically integrated monopolies. They provided all services—fixed lines and local and international long distance. Some of them were even offering limited mobile services in the early 1990s. In Peru, Venezuela, Mexico, and Panama, governments sold the state-run companies in a manner that preserved vertical integration. However, in Brazil, Chile, and Argentina these companies were broken up and separated by regions and by service—local calls, domestic long distance, and international long distance—to maximize profits. According to OSIPTEL (2003), all governments in the countries where Telefónica operates have granted the company renewable contractual agreements. The time for renewal differs from country to country. For example in Venezuela, Telefónica renews its contract every nine years and, in Peru, every four years. Other countries average five years. Renewal is conditional upon honoring the contracts. OSIPTEL indicates that the governments stipulate that Telefónica must modernize infrastructure, improve the quality of service, expand by increasing the number of home phone lines and public telephones in urban areas, and extend service to rural areas. These contractual agreements also stipulate fair tariffs and universal access in order to assure that all citizens can use these services. Despite the stipulations, the price of Telefónica’s services remains unreachable for a large segment of the population in Latin America. In the end, the advent of new communications technologies and the idea that new technologies would generate and improve economic growth for everyone has not panned out. In this part of the world where a large number of people still live on $1 or $2 per day, the possibility of owning a private home telephone, a cell phone, or a computer with broadband access is simply out of reach. While Telefónica has generally honored parts of its contractual agreements, particularly by extending lines and improving the quality of service, it is first

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and foremost a commercial enterprise whose main goal is to maximize profits. Telecommunications privatization and the entrance of Telefónica and other foreign telecommunications operators in Latin America have been characterized by systematic layoffs, the erosion of job security, and ongoing labor struggles. The following section describes Telefónica’s entrance into its four primary markets and some of the labor issues confronted in them: Argentina, Chile, Peru, and Brazil. Argentina Argentina’s ENTEL, originally nationalized in the 1940s under President General Juan Perón (1943–1955 and 1972–1974) remained a national asset until 1990, when it was split regionally and one sector was bought by Telefónica. This was Telefónica’s first acquisition in Latin America. Telefónica had originally tried to purchase Argentina’s ENTEL in 1988, but President Raúl Alfonsin (1983–1989) blocked the privatization. This action was one of many factors leading to Alfonsin’s political downfall (Molano, 1997). Beginning in 1990, President Carlos Saul Menem (1989–1999) privatized ENTEL along with other national enterprises. Splitting ENTEL into two companies maximized the cash flow that his government needed to recover from economic instability. Telefónica acquired all operations in the southern part of the country while together Telecom Italia, France Telecom, and J. P. Morgan bought ENTEL’s northern operations, now called Telecom Argentina.10 Throughout the 1990s, Telefónica solidified its position in the Argentinean market, expanding beyond fixed line operations to mobile telephony. In 1992 it entered into a partnership with its competitor Telecom Argentina, creating the joint venture Movistar (Telefónica de Argentina, 2006). Telefónica also acquired a 50 percent stake in Startel and Telintar, offering international data transmission and other telecommunication services.11 As of 2007, Telefónica de Argentina reported having over four million customers with fixed lines, eleven million mobile customers, 660,000 broadband customers, 120,000 public phones, and over four million monthly users of its Internet portal Terra. The company forecast in April of 2008 that its Argentinean cellular phone clientele in 2010 will be more than fifteen million compared to the eleven million at the end of 2007. Also, its broadband customers will grow to two million. Telefónica employs a total of eighteen thousand people in Argentina, but it is important to note that this number also accounts for employees of smaller local companies that supply services to Telefónica. Although this number appears robust, Telefónica has a history of massive layoffs in Argentina and other Latin American countries. Between 1994 and 2001, Telefónica laid off a total of 6,836 employees in Argentina. To avoid becoming jobless, many agreed to

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take salary cuts and give up lunch stipends, seniority raises, and other benefits. Other workers agreed to rotate every two months, participating in what the company calls voluntary suspension.12 As a consequence of these labor practices, the trade union Ce.P.E.Tel (Centro de Profesionales de Empresas de Telecomunications [Center of Professionals of Telecom Enterprises]) has been reactivated by workers. This union represents telecommunications employees in dialogue with the Minister of Labor during labor disputes. In June 2002,13 a plan to lay off about two thousand professional and technical employees was in place. Out of these two thousand employees, one thousand were to be laid off permanently and the other one thousand temporarily released through the voluntary suspension program. Telefónica justified these layoffs on the basis of the 2001 economic collapse. The Ce.P.E.Tel actively engaged in conversations with the Ministry of Labor and brought the layoff of at least one thousand employees to a halt. Since then, animosity against Telefónica and other Spanish corporations has been growing in Argentina (El País, 2001).14 Here, the image of Telefónica and other Spanish corporations has been tarnished, not only due to the hostile purchasing of national assets that took place throughout the Menem government in the 1990s, but also because of the disregard for the social impact that these layoffs have had in an already deteriorated economy. There is no safety net for the unemployed and their families. In 2001, general strikes protesting the national economic situation soon turned into demonstrations against Spanish presence. Protestors destroyed property belonging to Spanishowned corporations Telefónica, Repsol-YPF, and Aereolineas. This situation is not unique to Argentina, since similar conflicts have occurred across the continent and particularly in countries with significant Spanish investments. Chile The Compañia de Teléfonos Chile (CTC) was originally founded by ITT in the 1930s, and today is Telefónica Chile. Behn modeled the CTC after his Spanish jewel, the former CTNE, now Telefónica. Ironically, today Telefónica owns many former ITT subsidiaries in Latin America. The CTC was nationalized in 1971 when democratically elected Socialist President Salvador Allende (1970–1973) acquired the “A” type shares owned by ITT. After the 1973 coup against Allende’s government, the company remained in the hands of the state under dictator Augusto Pinochet (1973–1990). Following international neoliberal trends taking place in England and the United States, in 1985 Pinochet began privatizing state-run Chilean enterprises. In 1987, the government divested its shares from the company and the Australian investor Bond Corporation Chile (BCC) bought the shares.

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In 1990, Telefónica acquired BCC’s shares, gaining 49 percent ownership of the former CTC. Telefónica paid approximately $392 million.15 According to the historical background provided by Telefónica Chile, the company amended its bylaws to prohibit any shareholder from owning more than 45 percent of capital stock, thus reducing Telefónica’s holdings to 44.9 percent as of 2007. However, this is enough to gain controlling power over the company. The rest of the pie is divided with 25.7 percent owned by an insurance pension fund company (AFP), 16.3 percent figuring as other, 11.9 percent in the hands of private investors holding ADR, and 0.7 percent owned by foreign interests (Telefónica Chile, 2007). As in Argentina, labor conflicts have arisen between workers and management. Between 1997 and 2002, Telefónica laid off thousands of workers, as presented in table 4.4. As the table shows, hires apparently increased within Telefónica’s subsidiaries between 1998 and 2001. However, between 1997 and 2002, there were actually a total of 4,231 layoffs. Perhaps the worst year for Chilean Telefónica workers was 2001, when the company fired 1,600 employees, or about 20 percent of its workforce. According to El País (June 6, 2001), Telefónica cited the sluggish Chilean economy and the collapse of the Argentinean economy as the primary reasons for these layoffs, indicating that job cuts would save the company money. Newspaper El Mundo (June 8, 2001) states that these layoffs were aimed at recouping losses of $300 million incurred between 1999 and 2001. The Financial Times Expansion (June 11, 2001) reported that these layoffs would enable Telefónica to save $47 million over the next twelve months. In the face of massive layoffs, Telefónica and the government of President Ricardo Lagos (2000–2006) encountered great resistance from workers and their union. When the company announced the layoffs in June 2001, over three thousand workers went on strike. Police responded with brutality and detained six union leaders, alleging that they had aggressively attacked police officers (El País, June 7, 2001: 55). The union presented a court appeal against the arrests and the job cuts. The strike lasted twenty-six days (El País, July 28, 2001). The layoffs were put on hold for eighteen months, but as table 4.4 indicates, many workers ultimately lost their jobs. TABLE 4.4 Number of Employees

Total personnel Main CTC Subsidiaries

1997

1998

1999

2000

2001

2002

8,802 6,898 1,904

8,985 6,917 2,068

9,933 5,649 4,284

9,250 4,639 4,611

7,720 3,223 4,497

4,571 2,540 2,031

Source: Telefónica Chile (CTC), 2004

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Although these labor conflicts have tarnished Telefónica’s image in Chile, the company has become omnipresent in daily life through its cable, Internet, and telephone services. Telefónica also engages with and shapes the public education system, supplying schools with technological support and acquainting children with its brand and services. In 1998, Telefónica signed a contract with the Ministry of Education, launching the Internet 2000 project to supply the Chilean educational system with Internet access. Through this project, Telefónica serves 6,500 primary and secondary schools. As an exclusive Internet provider and content distributor in the Chilean school system, Telefónica is in a unique position to influence the use and consumption of technology in the newer generations of people. This captive public is becoming acquainted with, and perhaps loyal to, the Telefónica brand. Brazil Since Brazil is one of the largest Latin American markets and one of the strongest economies in the world, acquiring interests in Brazil is arguably a sound economic investment for any corporation. For Telefónica, acquiring assets in Brazil has meant a boost in its revenues and has established this corporation as one of the giants in the world of telecommunications. Until 1998, the Brazilian telecommunications system was under the protection and ownership of the state. This came to an end when the government divested its shares in TELEBRAS, selling them for $19 billion, 64 percent above the minimum price of $11.6 billion originally set by the government (International Market Insight Reports, October 20, 1998). This privatization is considered one of the most significant in the world economy at the end of the twentieth century. The government maximized its profits by creating twelve companies out of TELEBRAS. Overtime, Telefónica would acquire four out of the twelve companies. First, Telefónica acquired Telesp (now Telefónica Sao Paulo), the largest fixed telephone company in Brazil, located in Sao Paulo, the largest market in this country. Telefónica partnered up with Portugal Telecom for this Brazilian takeover, contributing to the purchase of Telesp. Next it acquired Tele Sudeste Celular, which includes mobile telephony in Rio de Janeiro, and Espirito Santo, then Tele Leste Celular, which services Bahia and Sergipe. Yet, as elsewhere in Latin America, at the turn of the twenty-first century Brazil’s sluggish economy inhibited Telefónica’s growth. The company also experienced increasing competition from other telecommunications corporations. However, Telefónica managed to weather the rough economic moment, establishing joint ventures and participating with other companies, including its competitors. Telefónica established a partnership with Portugal Telecom, providing wireless communications (3Gnewsroom.com, February 25, 2005), which

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would become more profitable than fixed telephony due to the growing number of subscribers. It also entered a joint venture with rival TIM, owner of Tele Centro Sul. By combining their resources, both companies have been able to access more cities and increase their profit margins. Joint ventures such as these allow corporations to reduce the capital needed to acquire global assets. These companies reduce the risk of losing large sums of capital, particularly in unstable markets, by sharing resources and infrastructure. However, joint ventures also present serious problems for society. As corporations cease to compete among themselves they enhance the formation of monopolies (Herman and McChesney, 1997). Telecommunications joint ventures impede public access to communications technologies at fair prices and deny citizens the right to choose between vendors. Often these joint ventures are also linked to media outlets, which translates into biased media coverage that protects the interests of the parent company or others in the group. Aggressive purchase of assets, mergers, and the arbitrary setting of tariffs are downplayed on the media channels (whether newspapers, radio, or TV news) linked to telecommunications companies. The privatization of telecommunications in Brazil has brought labor problems as well. Brazilian workers have not escaped the systematic voluntary suspensions and layoffs carried out by Telefónica throughout Latin America. In November 1998, Telefónica announced that it would lay off 2,500 of its 22,000 employees in Brazil. At the time, Fernando Xavier, chairman of Telefónica in Brazil, explained that the company would implement a “voluntary redundancy plan” and added, “Telefónica is planning to shed 6,000 jobs worldwide” (O Globo, November 27, 1998: 24). A year later, Telefónica merged with Companhia Telefónica Borda do Campo (CTBC), promising that the merger would not cause any job losses but that the synergy would create savings instead. However, a day after the merger was approved, Xavier informed the press that “redundant structure” would be simplified (O Globo, November 30, 1999), which basically meant letting go a percentage of its workforce. Almir Munhoz, chairman of the Brazilian labor commission Sintel, commented that scaling back approximately 20–30 percent of the payroll was not unusual in the context of telecommunications privatization (O Globo, Novemeber 11, 1998). Indeed, in the following years Telefónica laid off thousands of workers from its different operations in Brazil. In a telling example, Telefónica’s 2002 annual report shows that Telesp employed a total of 9,515 workers; in 2003 the figured dropped to 7,134. Peru The Peruvian telecommunications sector was nationalized in the early 1970s under the populist regime of General Juan Velazco Alvarado. The Com-

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pañia Peruana de Teléfonos (CPT) served Lima and the Empresa Nacional de Telecomunicaciones del Perú (ENTEL-Perú) served the rest of the country. Both operated as state-run monopolies until 1994 when President Alberto Fujimori (1990-2000) privatized them (Perla, 1995; Klaren, 2000; OSIPTEL, 2000). Between 1992 and 1994, Fujimori’s government prepared to divest state shares in telecommunications, merging CPT and ENTEL-Perú in order to have one solid company to offer the international market (OSIPTEL, 2000). The government sought to increase the company’s value by laying out fiber optic cables in most of Lima’s high-income neighborhoods. Telefónica initially bought 35 percent of the state’s shares. The state kept about 25 percent and sold the rest to local investors, including local bank Wiese (OSIPTEL, 2000 and 2003). In 1996, Fujimori’s government sold the remainder of the state’s shares to Telefónica. When Telefónica became the principal shareholder, it changed the company’s name from ENTEL-Perú to Telefónica del Perú. Soon after purchasing all state assets, Telefónica bought shares from most minority shareholders. As of 2000, its shares amounted to 95.8 percent (Rivera, 2000); as of 2007, they amounted to 98.9 percent. Of all Latin American countries where Telefónica operates, Peru has been hit hardest by layoffs. Between 1994 and 2001, over nine thousand workers were fired or invited to resign with severance pay (Reuters, July 18, 2002). In June 2001, Telefónica laid off 570 employees, breaking a collective agreement signed in April 2001 (Opiniones, April 7, 2004). These and many other violations of collective bargaining agreements took place under President Fujimori’s neo-liberal government. When President Alejandro Toledo (2001–2005) took office, he tried to stem the tide of massive layoffs and hold Telefónica responsible for its agreements. He also pressed the company to keep tariffs low, eventually reducing them by 2 percent. Telefónica estimated that this reduction cost the company $400 million in revenues (Expansion, August 30, 2001: 4). It responded to this reduction by cutting a planned $1.5 billion expansion program originally laid out for the years 2001–2005. In 2002, Telefónica laid off another 480 employees, ostensibly due to the national economic crisis, the harsh policies for tariffs imposed by the government, and the growing competition from smaller telecommunications companies. In response, the Labor Ministry fined Telefónica $17,700 for breach of contract. However, the company fought this fine, alleging that it violated due process and calling on authorities to adhere to existing laws. A Telefónica spokesperson asserted: “Restructuring the workforce to respond efficiently to the realities of a competitive market and the long-term development of new technology is

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within the company’s rights” (EFE, August 12, 2002). Yet this statement is problematic since Telefónica holds a near monopoly for fixed line and mobile service in Peru where there is no robust competition. In response to public outcry over its labor practices, Telefónica initiated a public relations campaign in Peru to show that its workforce had grown 22 percent (hoover.com, 2004; www .telefónica.pe, 2004). However, the campaign does not mention Telefónica’s routine practice of contracting for temporary workers (SUTTP, 2004). Telefónica’s Other Assets Terra Networks Terra Networks, also called Terra, was the first commercial Internet provider to enter the Spanish- and Portuguese-speaking markets. Terra provides Internet, portal, and content services for personal, commercial, and institutional use in Europe and across Latin America. Terra is a strategic company within the Telefónica group because it has the technological flexibility needed for converging technologies. Terra was the first Spanish Internet stock listed in Nasdaq. It became known internationally in 1999 after its value soared when the company purchased assets in Spanish and Latin American markets (Telefónica, 2000). Telefónica took control of Nutec, the secondlargest Internet service provider (ISP) and portal business in Brazil, securing Terra’s position in this market (Telefónica, 2000). Terra then sought access to various other markets where ISPs were still relatively new in order to consolidate its position in Latin America. In 1999, the Telefónica group also signed agreements with Mexican Reforma group to develop a joint ISP and portal business through infosel.com, a web site that now takes you directly to a Terra portal for Mexico. At the same time, Terra began operating in Argentina with advanced.com, in Chile with ctcinternet.cl, and in Peru with tsi.com.pe. In 2000, Terra acquired American based ISP Lycos, a portal with a great deal of experience in the U.S. market. At that time Terra was valued at eighteen billion euros, three times the value of Lycos. Combining the names of both companies, Terra-Lycos became the world’s third-largest ISP and dominated the English and Spanish speaking markets (Telecoms Deal Report, 2000; Annual Report, 2001). Telefónica paid a reported $6.5 billion to acquire Lycos. It aimed to compete with AOL around the world and particularly in the United States among the Hispanic population (National Post, October 28, 2000). Telefónica executives estimated that through Terra-Lycos they could do business in over thirty countries and have over forty million individuals visiting their websites monthly (Financial Post, May 17, 2000).

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The deal was accompanied by an agreement between Telefónica and Bertelsmann, the third-largest media company in the world. Together, they pioneered online commerce. Bertelsmann purchased $1 billion in advertising services from Terra-Lycos between 2000 and 2005. In turn, Terra-Lycos gained preferred access to Bertelsmann’s books, music, television, film, and other media content (Financial Post, May 17, 2000). In 2004, Telefónica sold Lycos to South Korean group Daum Communications for eighty-seven million euros (El País, August 3, 2004). Terra has kept some of Lycos’s assets in Asia and Europe, but currently does not hold any in the United States. Although this may appear to be a defeat for the group, Terra remains one of the strongest ISP and portal content providers in Spain, Portugal, and most Latin American countries, markets where Telefónica’s presence is well established. Adquira Adquira was created by the Telefónica group to operate in the e-commerce sector. It provides business-to-business (B2B) electronic networking services and handles communications technologies, travel, tourism, and insurance for the Telefónica group and other businesses (El Mundo, May 11, 2001: 39). Banco Bilbao Vizcaya Argentaria (BBVA) is Adquira’s largest shareholder, controlling 40 percent of its shares. Telefónica and its subsidiary Telefónica Publishing International (TPI) each own 20 percent, giving Telefónica equal partnership status with BBVA. Minor shareholders and Telefónica partners in Adquira are Iberia, the major Spanish airline with 10 percent, and Repsol-YPF, Spain’s major oil and gas company. These companies all use Adquira’s e-commerce system to carry out most of their own purchases, saving at least 15 percent over traditional purchasing methods. In Spain and Latin America, Adquira also contracts with over twenty thousand businesses of all sizes and, as of 2001, had forty professionals on its payroll. The company offers three electronic options: e-procurement for companies to buy products from different parts of the world through Adquira; emarket in which Adquira is the intermediary in the buying and selling of supplies between businesses; and e-auctions where companies take part in complex auctions for goods and services (Regulatory News Service, July 10, 2001). These three technological options make this e-commerce portal more effective in the markets where it operates, particularly in Latin America where businesses tend to range in size mostly from small to medium. In industrialized nations B2B has become widely used only in the past ten to fifteen years and has recently been catching on in developing countries. Considering that Internet use is fairly new to most people in these countries and that

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the economic structure does not lend itself to online retailing with individual customers, B2B is where most e-commerce profits are made. Adquira currently operates in Argentina, Brazil, Peru, Chile, and Mexico. With Adquira, Telefónica aims to promote and develop horizontal markets in Spain, Portugal, and Latin America. Creating a B2B platform gives this group extraordinary power not only in terms of telecommunications but also in terms of controlling the movement of goods domestically and internationally. Adquira buys goods and services in bulk, thereby having a huge inventory at its disposal at all times. This gives the company the power to set prices and in many cases bring them down. Adquira’s power as buyer and seller in economies of scale allows Telefónica to enter into other realms of the economy beyond telecommunications and media. Through Adquira, the Telefónica group has a hand in raw materials such as copper, gold, gas, food products, machinery, hardware, software, and so on. As Adquira grows, Telefónica gains control of key resources that drive the economies of Latin America and other regions of the world. Atento Another company within the Telefónica group is Atento. It operates call centers and contact centers to help businesses design better strategies to capture new markets, create synergies, and compete efficiently utilizing old and new technologies for traditional marketing, telemarketing, and advertising. Like Adquira, Atento operates with a combination of capital from Telefónica and BBVA. It offers businesses a multi-platform digital service managed through fifty-one of its contact centers located in Spain, Morocco, Italy, Tangiers, and in Latin America, where it has branches in Argentina, Brazil, Peru, Mexico, El Salvador, Venezuela, Puerto Rico, Colombia, and Guatemala (www.atento.com; www.telefónica.es). Several Fortune 500 companies outsource customer service to Atento. Its technological capabilities place this company among the top-ten call center enterprises in the world. Atento also consults with businesses in the areas of finance, transport, energy, telecommunications, goods consumption, and governmental and public institutions. Atento claims to have transformed the traditional call center into a “customer interaction center where people can communicate seamlessly in the way they prefer, regardless of the technology platform” (M2 Presswire, July 13, 2000). Its technological flexibility and large number of employees makes it one of Telefónica’s most important assets. Atento has thirty thousand customer service agents. Atento engages with its customers through live text chat, voiceover IP, Web callback and e-mail (atento.com; M2 Presswire, July 13, 2000; www.telefónica.es).

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Conclusion Telefónica’s privatization in 1996 has gone hand in hand with its rapid global expansion. State divestment and subsequent ownership by major banks and smaller private investors has been crucial for the company’s growth. Concurrently, major political changes in Europe and Latin America have facilitated Telefónica’s expansion. Although it has operations in Europe, North Africa, and Asia, Latin America remains its principal marketplace, providing the group with over 40 percent of its total revenues. Argentina, Chile, Peru, and Brazil are considered Telefónica’s major markets, where the company has achieved near monopoly status in fixed and mobile telephony services. Telefónica has taken advantage of new technologies, becoming the largest Internet provider for the Spanish- and Portuguese-speaking worlds through its subsidiary Terra Networks. When Telefónica purchased the U.S.-based Internet portal Lycos, Terra became the third-largest ISP in the world and one of AOL’s strongest competitors. Through Adquira and Atento, Telefónica has expanded into other commercial realms, serving as consultant and mediator between businesses as well as trading goods and services. The period between 1990 and 2003 can be considered the golden age for Telefónica since it is during the 1990s that most of its growth took place, in terms of both geographical expansion and diversification of products and services. The first three years of the twenty-first century also have been fruitful for its business, despite a slight decline and signs of retreat from some of its media holdings. CEO Cándido Velázquez-Gaztelu, who presided over the company from 1989 to 1996, was the person who clearly saw Latin America as their natural market and ready for conquest. Following him and with the same vision was Juan Villalonga (1996–2000). Under the leadership of these two CEOs most of the telecom expansion took place in Chile, Argentina, and Peru. At the same time, it was during their presidencies that the company began its entrance into the media business in a manner that has established Telefónica as an important player for worldwide distribution, and to a lesser degree for production of content. Notes 1. Audit Report on Consolidated Annual Accounts and Consolidated Management Report for the year ended December 31, 2006; Ernst and Young Company, Madrid, Spain. 2. Corporate Identity, www.telefónica.es, last accessed June 12, 2007. 3. It is worth noting that there are no women either on the board of directors or in positions of power within the company.

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4. www.telefónica.es, last accessed June 17, 2007. For a full and updated composition of the board of directors and current significant shareholders’ interests (BBVA and La Caixa) visit Telefónica’s website. 5. Annual Report (2006). Corporate Governance, www.telefónica.es, last accessed June 12, 2007. 6. www.telefónica.es, last accessed June 3, 2007. 7. Interview with Chairman Juan Villalonga, CNN, November 23, 1998. Transcript obtained through Academic Lexis-Nexus on April 21, 2005. 8. Interview with Chairman Candido Velásquez-Gaztelu, Wall Street Journal, 1990, as quoted by Bustamante, 2000. 9. Organismo Supervisor de Inversión Privada en Telecomunicaciones (OSIPTEL) is a Peruvian government agency that supervises private investment in the area of broadcast and telecommunications. 10. The New York Times, November 12, 1990, D8. Headline: “Telephone sale by Argentina.” 11. Telefónica de Argentina, lsb.scu.edu/emerge/bo/Telefónica.html, last accessed June 12, 2007. 12. www.animalistas.org, last accessed March 17, 2006. This is a website with alternative news collected from Argentina. Other information relevant to layoffs in Argentina as discussed in this chapter segment can be found by accessing the official page for the Central de los Trabajadores Argentinos at www.cta.org.ar and Foro de Trabajadores de las Telecomunicaciones at www.forotelec.org. 13. Cristina Avendaño, Telefónica de Argentina Discrimina a sus Empleados y Realizará Despidos Masivos en Marzo de 2003, www.utopiaverde.org, last accessed March 17, 2006. This is a website with alternative news collected from different parts of the world. 14. El País, June 9, 2001, 52. Headline: “La huelga general en Argentina se convierte en una jornada contra las empresas Españolas.” 15. In 1971 the elected socialist President Salvador Allende nationalized the Compañia de Telefonos de Chile (CTC), acquiring for the country 80 percent of the total shares then held by ITT. The other 20 percent remained in the hands of local investors. www.ctc.cl/historica, last accessed March 10, 2004.

5 Telefónica’s Media Conquest

1996 AND 2003, Telefónica went from being primarily a telephone company to a diversified telecommunications and media group. Taking advantage of global markets, technological convergence, and domestic and international deregulatory processes, the company branched out into broadcast, cable, and satellite television, radio, film, music, publishing, and Internet media content. The implications of a company that is both a content producer and content distributor are numerous. One of the most significant is the fact that it can influence and control a range of viewpoints and ideas in the public sphere. Such influence can hamper fair competition in markets, consumer choice, democratic political processes, and the benefits that a true diversity of voices offers in social and cultural life (Kunz, 2007). Analyzing the patterns of Telefónica’s media ownership will show us the extent of its corporate reach and how it has successfully emulated big global conglomerates that have been trendsetters for vertical and horizontal integration. In 1996, Juan Villalonga became chairman of Telefónica just as the Spanish government divested itself of its remaining shares in the company. The EC became the EU that same year and Spain increased its liberalization and deregulation policies in order to remain a member. As the government divested all of its telecommunications interests, it also opened up the television market, and Villalonga launched a new agenda of integration, diversification, and further internationalization, emulating transnational conglomerates such as TimeWarner, AT&T, Sony, General Electric, and Vivendi. This multifaceted structure has remained in place under chairman Cesar Alierta, who succeeded Villalonga

B

ETWEEN

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in 2000. It was during Villalonga’s term that Telefónica consolidated itself into Telefónica Group and ceased being solely a telephone service provider. Telefónica had branded itself primarily as a telecommunications company, and telecommunications remains one of its core activities and primary sources of revenue. But thanks to the arrival of new technologies and neo-liberal policies in the past decade, the Telefónica group also became a major producer and distributor of content, primarily through its subsidiaries. Telefónica’s acquisition of diverse media holdings allowed it to exercise new forms of economic, political, and cultural influence, yet its relationship to media and hence culture has seldom been examined. Further, understanding how Telefónica transformed into a diversified telecommunications and media group is a complex endeavor. Many mergers, acquisitions, and liquidations have taken place in a very short period of time, and major changes continue to occur at the time of this book’s writing. In the mid-1990s, when Telefónica began its entrance into the media business it created Telefónica Media, and by 2001, the executive board seeing the potential in the business approved the creation of a new corporate branch, Admira. Telefónica Media was then split in two: Admira and Contenidos. Telefónica Media consolidated three of its business units—broadcast television and radio, cable television, and content production—into Admira, which also produces films. Contenidos was primarily dedicated to the expansion of Internet content (Annual Reports 2001 and 2002). By 2006, all media assets were combined under one branch—Telefónica Contenidos—dissolving Admira (Annual Report, 2006). This pattern reflected the new formula of not owning content producing subsidiaries but partnering with those who produce content so that Telefónica could be the main distributor of the content via cable, satellite, Internet, and mobile phone television.

Telefónica’s Expansion into Television Until the end of the 1980s, television was a public monopoly in Spain. The state-owned Radio y Televisión de España (RTVE) was made up of two national networks and nine regional units. Some municipalities owned retransmission television stations that carried RTVE programs. This television landscape changed after Spain’s accession to the EC in 1986 when President Felipe González opened the market to private television ventures. In 1989, the government granted licenses to three new private television companies, adhering to new European regulations established under EC’s Television Without Frontiers Directive. These private companies were Antena 3 TV, owned by the Zeta Group, Tele 5, owned by the Correo Group in partnership with Italian com-

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panies Mediaset and Telefuturo, and Canal Plus, owned by the Prisa Group through its subsidiary Sogecable in partnership with French Canal Plus (Garcia-Avilés, 2003, 261; Business Spain, 1996).1 In the early 1990s, Telefónica was poised to become one of Spain’s largest television and cable players and was already involved in media in Latin America. Even before it had launched cable in Spain, Telefónica was providing cable services in Peru through Cable Mágico and in Chile through Metrópolis. Full privatization of Telefónica coincided with the complete opening of the television market in Spain and the ratification of the updated version of the Television Without Frontiers Directive in 1997. Cablevision Telefónica’s first foray into television was Cablevision. In 1995, Telefónica entered in partnership with Sogecable owned by the Prisa Group and French Canal Plus. They formed Cablevision where Telefónica owned 51 percent of the shares. Cablevision initially operated in Madrid and Barcelona. It expanded rapidly and by 1996 was operating in about thirty-eight cities (Extel Examiner, 1995).2 However, the new cable operation found itself embroiled in conflict when its competitor Antena 3 TV complained to the European Regulatory Commission that the concentration formed by Telefónica and its partners created an anti-competitive environment. Because the French company Canal Plus owned 25 percent of Cablevision’s shares this was not exclusively a Spanish matter and the European Regulatory Commission demanded that Telefónica halt its operations of Cablevision until it became clear whether or not the cable company was breaching EU anti-trust rules and monopolizing the Spanish market. After investigations, the Regulatory Commission declared the venture a case of concentration and warned Telefónica that it would face a heavy fine and that its new deal to become part of global telecommunications Unisource would be jeopardized if it persisted in dominating the market (New Media Markets, 1996).3 However, Telefónica and its associates the Prisa Group and Canal Plus argued that they were not engaged in concentration or consolidation of interests but rather in business cooperation (New Media Markets, 1996). The case was brought to the Spanish court, which went along with the European Commission’s ruling and ordered Cablevision to halt its operations (Business Law Europe, 19964; Cable & Satellite Europe, 1996).5 Cablevision ceased to operate in October 1996, but Telefónica soon returned to the media business, gaining a strong presence in several other media markets. At this time, the Spanish government drafted a new telecommunications policy that facilitated the extension of Telefónica’s telephone monopoly to the cable industry. The government

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licensed only two cable franchises, handing Telefónica one of these licenses in a no-bid contract (Ruiz Arguello, 1995, 9A).6 In this manner, once again, the government was supporting Telefónica’s expansion beyond telephony while also creating a cable duopoly in the Spanish market without real competition. Antena 3 TV and Via Digital Antena 3 TV was the first major private broadcast television network in Spain (www.antena3.tv.es; www.museum.tv), which began full operations in 1990. Its original majority shareholders were the Grupo Zeta, Renvir, Banesto, and the Banco Santander Central Hispano. Antena 3 TV was highly competitive in the Spanish market, earning high ratings for its programming. Thus, this network attracted major advertising revenues. However, it soon underwent some changes in its shareholding structure and by 1997 Telefónica managed to buy 35 percent of this former competitor network, gaining majority partner status. The second major shareholder was Banco Santander Central Hispano (BSCH) with 22.58 percent, and the Grupo Recoletos controlled by Pearson and other investors owned the remaining shares of the television network (The European, 19977; AFX News 19978). Antena 3 TV then entered a partnership with Radio y Television Española (RTVE) and regional Spanish TV stations Telemadrid, Canal 9, Televisión de Galicia, Televisión de Cataluña, and Televisa from Mexico. Using the production and programming strengths of all these media companies, Telefónica created Via Digital, a pay-TV satellite company that served a large portion of the Spanish market. Spanish Canal Satelite Digital, a subsidiary of Soguecable owned by the Prisa Group and a former partner of Telefónica in Cablevision, soon complained to the European Regulatory Commission. Jesús de Polanco, majority owner of the Prisa Group and Canal Satelite Digital, protested Telefónica’s aggressive consolidation with these other television stations because this gave Telefónica major control over the broadcast television and satellite television markets. Further, the combination of these two delivery systems would make Telefónica’s media subsidiaries a more attractive option for advertisers who could possibly gain dual coverage in both markets and lower bundled rates. However, perhaps one of Polanco’s major concerns was the possibility of losing the exclusive right his cable company had to transmit soccer matches because these events generated significant revenues from advertisers. Jesús de Polanco and the Prisa Group went as far as to accuse President Aznar’s (1996–2004) government of favoring Telefónica. Some say that this reflected the relationship between the Prisa Group and the government, and the “antipathy felt by the Spanish government towards the Prisa Group, part-

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owner of Canal Satelite Digital, which had ties with the previous government [the socialist PSOE]” (Cable Europa, 1997).9 In response, El País, Spain’s largest national circulation newspaper, launched a campaign against Telefónica, alleging that the company was engaging in anti-competitive practices and that the government was not sanctioning Telefónica for unfair competition and hostile takeovers. El País revealed that Aznar had approved Telefónica’s purchase of Antena 3 TV even before the parties came to an agreement (AFX News, 1997; El País, 199710). The significance of the newspaper campaign against Telefónica extends beyond Telefónica’s infringement on anti-trust Spanish and EU regulations with the blessing of Aznar’s government to El País not necessarily being objective in its coverage. The Prisa Group owns El País as well as the cable company competing with Telefónica’s subsidiary Via Digital at that time. This clearly shows how media groups attempt to influence and disseminate information to shape public opinion. The EU Regulatory Commission deemed the case a domestic matter and did not intervene, letting the Spanish government deal with the problem. Aznar’s government did not address Canal Satelite Digital’s complaints. Telefónica not only kept its shares in Antena 3 TV and Via Digital, but it acquired more shares in Antena 3 TV when in 1998 the government passed a law allowing companies to own up to 49 percent.11 The new law obviously benefited Telefónica’s expansionist drive in the media business, and Telefónica ended up owning 47.21 percent of shares in Antena 3 TV. The government was not only benefiting Telefónica but was also securing an outlet—Antena 3 TV, which would consistently be sympathetic to its politics, policies, and future party candidates (El Mundo, April 4, 2004).12 Telefónica’s involvement in Antena 3 TV and Via Digital was not only crucial to its strategic plan to diversify its assets but was also fundamental to its transnational expansion. For example, with Telefónica as majority shareholder, Antena 3 TV expanded its production operations to Latin America. It set up a production house in Peru to create programming for three cable channels owned by Telefónica and distributed through Telefónica’s Peruvian cable operation Cable Mágico. Some programming produced by Antena 3 TV both in Spain and Peru was distributed in other Latin American media outlets where Telefónica owned direct or indirect interests as well. At the beginning of the twenty-first century, Antena 3 TV was doing relatively well in the open-air market, but Via Digital was facing fierce competition from Canal Satelite Digital. At the same time, both pay-TV companies were facing competition from other EU and U.S. cable networks and satellite providers that had recently entered the Spanish market. In 2002, the executives of Telefónica’s media operations, following the lead of big players in global media, decided to merge Via Digital with its competitor under the

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brand Sogecable. This is an example of contemporary media models in which profits are maximized by cutting costs, avoiding dissolution of competing companies, leaving strife behind, and moving on to win-win situations through merged companies sharing markets and resources. In 2003, as the merger was nearing its final stage, the Spanish government, following Spanish and EU regulations, asked Telefónica to divest its shares in Antena 3 TV in order to complete the new pay-TV deal with Sogecable in which Telefónica would own about 23 percent. Telefónica carefully selected its buyers and sold its Antena 3 TV shares primarily to partners in other businesses, such as Bertelsmann, which bought 18 percent. Another 25.1 percent was sold to Planeta, a Spanish publishing company in association with Italian investor De Agostine.13 According to El Mundo, (April 4, 2004) the sale of Antena 3 TV was an orchestrated government operation with Telefónica favoring certain communications groups that in turn would keep Antena 3 TV sympathetic toward Aznar’s government and his party’s future interests, including the promotion of 2008 presidential candidate Mariano Rajoy. One should not forget that the Spanish government retains considerable power in and control over Telefónica through its golden share. The golden share gave the government veto power and power to appoint the chairman for Telefónica. Thus, Telefónica was tied to and biased to support the government, especially a conservative neo-liberal government that promoted laws for the group’s expansion. Endemol Endemol was one of the largest television production houses in both the Netherlands and the United Kingdom. Created by Joop van den Ende and John de Mol, who named the company after themselves by combining their last names, this company was best known for creating several well-known reality shows, particularly Big Brother, Fear Factor, and Deal or No Deal. Their programs are distributed in over one hundred countries and licensed for local versions to NBC in the United States, TV Globo in Brazil, as well as other worldwide networks (Endemol, 2003; Hogarth, 2006). Endemol generates billions of dollars in revenue by issuing licenses to other companies to use their programs’ formats. Endemol UK began as a medium-sized company under a different name and ownership. It was founded as Broadcast Communications in the early 1980s. By 1989, the Guardian Media Group (GMG), owner of newspapers The Guardian and The Observer, acquired the company. In 1990, GMG expanded Broadcast Communications by purchasing Bazal and Hawkshead, two independent production companies. Two years later, GMG expanded further by

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acquiring Initial, an important music and live TV producer in the UK. In 1998, GMG sold 50 percent of Broadcast Communications to Endemol Netherlands. Endemol was already a well-established television production house, selling throughout Europe and other continents. At the same time, Broadcast Communications had a strong presence in the independent television production business in the United Kingdom. With the purchase of Broadcast Communications, Endemol consolidated the programs and formats of both houses, selling and licensing numerous rights and brands. Endemol no longer depended solely on producing programs but rather on worldwide distribution of television programs, home videos, DVD sales, sales of ancillary products, as well as licensing its products for adaptation to local markets. Through these acts, they created a potentially infinite source of revenue. This form of synergy has given Endemol an edge in the media market. We have seen that this type of media synergy is not unique to Endemol. Since the 1980s, it has become the primary means through which major media corporations maximize their profits (Wasko, 2003; Herman and McChesney, 1997). In 2000, Telefónica made its most important international media acquisition by buying Endemol UK. Under chairman Villalonga, it first acquired 50 percent directly from Endemol and later purchased the remaining 50 percent from GMG, paying a total of $4.9 billion (Regulatory News Service, 2000).14 This purchase allowed Telefónica to supply content directly to its television operations and sell content to others. It was also able to supply Internet content to its portals as well as its third-generation mobile telephone service that was just beginning.15 With Endemol in its group, Telefónica secured 100 percent ownership of the largest production house in the United Kingdom and perhaps the largest in Europe. According to Endemol (2006), the company produced fourteen thousand hours of programs annually, and its shows were distributed in over one hundred countries. At the time Telefónica purchased it, Endemol had more than four hundred television programs in circulation, and it was the main supplier for Radio Television Luxembourg (RTL), a Bertelsmann subsidiary with TV stations in the Netherlands and Germany (Endemol, 2003).16 Its major clients included BBC (1 and 2), Channel 4, E4, NBC, and Rede Globo. With the purchase of the company, Telefónica gained all of these clients. Endemol’s production fed into Telefónica’s cable, satellite, and Internet operations in Spain and Latin America, including those of its many associates. With Telefónica’s blessings, Endemol went on a shopping spree. In 2001, it bought production house Brighter Pictures, its UK rival (Reality TV World, 2003).17 Brighter Pictures’ previous owners Gavin Hay and Remy Blumenfeld stayed on as directors, creating popular entertainment shows such as Hard

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Copy and Real TV. In 2002, Endemol acquired comedy production house Zeppotron and in 2003 rounded out its holdings with the purchase of interactive programming production house Victoria Real (Endemol, 2004). Zeppotron, the second addition to Endemol’s list, was founded as an online short form comedy company called zeppotron.com.18 The signature of zeppotron.com was the satirical website TVGoHome, created by Charlie Brooker. TVGoHome was later turned into a popular television show for the digital channel E4 and has also been converted into a book (The Daily Telegraph).19 Zeppotron founders and creative directors Neil Webster, Charlie Brooker, Ben Caudell, and Peter Holmes expanded the online company into a mediumsized television production house. When Endemol purchased it, Zeppotron was supplying about one thousand hours of programs to different UK broadcast networks as well as satellite and cable. Buying Zeppotron meant gaining access to the creativity of its former owners who remained with the company. The four founders had a great deal of experience, having previously worked for Channel 4. They were the creators and core writers of the United Kingdom’s highly rated comedy show The 11 o’clock Show. Since 2000, Zeppotron has increased its production of comedy shows for television and was successfully filling the UK market and selling abroad. Some short comedies originally produced for the Internet became television programs, such as Channel 4’s Ban this Filth. As of 2007, 8 Out of 10 Cats, Space Cadets, The Law of the Playground, and Spoons were in distribution in the United Kingdom, the United States, and several other countries. These programs owed their success to their satirical style and political incorrectness. These kinds of productions were aimed at generating high ratings by exploiting controversial topics and challenging social, political, and moral standards. The target audience for these online and television programs was generally teenagers and young adults. Endemol’s other company, Victoria Real, was originally founded in 1990 as a television sports documentary production company. Later, it included the production of programs for web delivery and interactive digital television (Growing Business, November 30, 2002).20 Victoria Real’s success came when it launched the interactive website for the now global hit Big Brother. Its other shows that have been made into interactive web programs are Fame Academy and The Salon (Endemol, 2006). Another Victoria Real staple was the creation of enhanced features designed to be used with the iTV digital system, which allowed audience members to have a virtual presence in the programs they were watching. Traditional television networks were buying Victoria Real’s productions and, in some cases, entering into partnerships with the company in order to cut costs for their websites, programs, and enhanced television features.

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These acquisitions show how Endemol cross-pollinated within its media holdings. This type of vertical integration makes the company function like a well-oiled machine, producing billions of dollars in global sales. It works as follows: Endemol produces television programs to sell worldwide; Victoria Real then produces the promotional interactive websites for the networks buying Endemol’s programs; Zeppotron then creates web comics and shows for web distribution; finally, the cycle begins again as Endemol spins the most popular of these Zeppotron programs and others into television shows for networks that later contract with Victoria Real to create the promotional and interactive websites. The ownership of several cogs in the line of production and distribution provides Endemol with the flexibility to create a variety of products in a short period of time, generate creative capital, and gain further technological knowledge. Further, owning this cluster of companies under the Endemol brand limits competition, enhances productivity, and ultimately concentrates profits. In 2005 Endemol had trading arrangements in twenty-three countries, including the major European markets, the United States, Brazil, Argentina, and Mexico. By 2007, Endemol’s products were well established in thirty-six countries. In 2008, the most successful programs circulating around the world were Big Brother, Restoration, Fear Factor, Deal or No Deal, Animal Park, Ground Force, Changing Rooms, and Cosmetic Surgery Live. These programs ran on major networks, and some networks bought licenses for reproductions, adapting them to local markets. Endemol stipulated, however, that these licensees must adhere to its guidelines, which only allow a certain degree of alteration (Hogarth, 2006). The influence of these formats created what we might call the Endemolization of local productions. Smaller local television networks, in order to have relatively good ratings and attract advertisers, began producing shows to compete with major networks showcasing Endemol products. Local smaller producers were forced to imitate Endemol’s format, creating low-budget reality programs and talk shows that used shock value and pushed the limits of social conduct to attract viewers. Another way in which Telefónica was gaining new customers was by formatting television programs for Internet and mobile phones. Telefónica positioned itself as the primary company to deliver in this format in Latin American countries and Europe since early in the twentieth-first century. Meanwhile, Endemol was producing equally for traditional television delivery systems as well as for Internet and mobile telephony. The relationship between Endemol and Telefónica exemplified how media and telecommunications became strongly connected at the end of the twentieth century and beginning of the twenty-first century.

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Although Telefónica recently divested all of its shares in Endemol,21 it has done this in order to concentrate on expanding its telecommunications structure so that it can be the vehicle through which Endemol and other global producers distribute content outside the traditional medium of television. In 2005, Telefónica took a major step toward furthering this expansion when it acquired O2, a telecommunications company operating in the United Kingdom and the Czech Republic. In 2007, it acquired Telecom Italia, further increasing its telecommunications presence in Europe. Through these companies, Telefónica was creating specific channels for content formatted for Internet and cellular telephone viewing. The relationship between Telefónica and Endemol shows us that as telecommunications became an increasingly important medium through which cultural production was distributed, the telecommunications industry itself began to play a vastly different role in society than it had when its main function was to provide telephony as a public service. Through its vast and far-reaching infrastructure, Telefónica has become a broker of cultural production. As the following section shows, Telefónica is not only an effective global distributor but also has a hand in local networks and production houses throughout Latin America, shaping the type of programming and information available to the public in that part of the world as well. Cable Mágico Cable Mágico began operating soon after Telefónica took over Peru’s national telephone system in 1994. In 2006, Cable Mágico was the largest cable operator in Peru with close to five hundred thousand subscribers (Telefónica, 2006). Cable Mágico offered a total of seventy-six international channels, among them CNN in English and Spanish, HBO, Discovery Channel, RAI, DW, ETB, and the three major U.S. television networks ABC, NBC, and CBS. Cable Mágico also included five local cable channels: Canal N, Cable Canal de Noticias (CCN), Cable Mágico Noticias (CMN), Cable Mágico Cultural (CMC), and Cable Mágico Deportes (CMD). Further, TV-Lima (formerly Antena 3 TV, a subsidiary of the Spanish network) produced the content for all of these channels, except for Canal N, which produced its own shows. Cable Mágico also carried the signal of all broadcast national television networks (Cable Mágico, 2003), operating in all major cities, such as Lima, Arequipa, Chiclayo, Cuzco, and Trujillo. Cable Mágico’s target audience was primarily the middle and upper classes. In 2006, the tariffs for cable were similar to those in the United States, and rates were out of reach for most of the population in Peru, as the average income is

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$175 per month. The growth of Cable Magico’s customers between 2000 and 2006 was not significant because individuals with higher incomes are already subscribers; thus, the urban market that can afford it is getting covered. The prices to subscribers were set according to what content providers charged Telefónica as a distributor. According to Telefónica executives, the company would not be able to make a profit if it created low-income packages below the standard rate already offered to the public. In 2007, the standard package cost $18 per month for thirty-eight channels, the intermediate package cost $25 for eighty channels, and the premium cost $35 for ninety channels (cablemagico .com, June 2, 2007). For provinces, less expensive tariffs are offered with categories divided similarly: premium at $25, intermediate at $16, and standard at $11 in 2007 (cablemagico.com, June 2, 2007). In Peru, cable television encroached upon the economies of local broadcast networks. These networks lost viewers to the broad array of cable channels with their great variety of programming from all over the world (although mostly from the United States). Major advertisers followed suit because cable channels reach the audiences with greater purchasing power. Impoverished local networks were then forced to create cheaper programming. As a result, the production of talk shows, comedy shows, comic news, and telenovelas [soap operas] geared to lower income viewers grew. The positive side of this is that there was more representation of marginal sectors in national television than before. However, women, people of indigenous backgrounds, rural migrants to the capital, and homosexuals were often represented in the most derogatory manner. In recent years, Telmex Cable, a Mexican operator in Peru, has been buying Telefónica’s other minor competitors in the Peruvian market, thus creating a duopoly in Peru’s local cable industry. Telefe Televisión Federal, most commonly known as Telefe, is the most important private television network in Argentina with 50 percent of its market located in Buenos Aires. The Argentinean government, under President Carlos Menem (1989–1999), authorized Telefónica to purchase Telefe in Buenos Aires and its eight networks in outlying provinces; such transaction was completed in 2000. This authorization also allowed Telefónica to acquire Radio Continental and increase its shares up to 50 percent in Azul Televisión and three provincial stations where Telefónica already had interests (businesswire.com, May 19, 2000). This transaction gave Telefónica 100 percent ownership of Telefe, the most influential television network in Argentina, allowed Telefónica to control the

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third largest television network, Azul Television, and gave it 100 percent ownership of Radio Continental, the largest radio network in the country, ranking third for AM and first for FM (Telefónica, 2000; businesswire.com, May 19, 2000). All of these purchases came at a time when animosity toward corporations’ labor policies was on the rise. The rapid takeover of several national firms by other Spanish transnationals in major industries, such as oil, gas, banks, and airlines, created a general mood of discontent. The concentration of telecommunications and media in the hands of Telefónica allowed the company to control information and be sympathetic toward the Menem government, which was privileging Telefónica’s growth in the country. Media outlets were no longer presenting diverse viewpoints on important national issues, especially as political and economic crises were mounting. Once Menem was out of the presidency, in 2001 the Argentinean Congress pressured Fernando de la Rua’s (1999–2001) government to enact the Radio and Television Law. Under this law, Telefónica was ordered to divest all of its interests in one of the television networks because the law restricted the ownership of media to one medium per area. As a result, the company sold its 50 percent share in Azul Televisión, which was not as large and influential as Telefe. Telefónica kept Telefe in order to hold on to the network’s high capacity for production of content in television and cinema. Telefe’s productions are traded in the regional Latin American circuit market with relative success, just behind Brazilian media products and almost equal to Mexican media products. Telefe’s programs are also sold in the United States to Hispanic networks and satellite companies carrying Hispanic programs and markets in Europe and Asia. In 2001, Telefe reached more than twelve million houses in Argentina (a third of the total population) through its air signal, its affiliated stations, and its cable TV systems (Gaceta de los Negocios, March 15, 2001). In 2004, Telefe launched a premium Internet television channel and a production house called Telefe International. Telefónica partnered up for this operation with Microsoft and Citibank (Telefe, 2005). In 2007, Telefe remained the most important television network in Argentina, and Telefe International was steadily producing for local and international markets, providing substantial revenues to Telefónica and its partners. The costs of production in Argentina (as in most Latin American countries) allowed media companies in the United States, Europe, and Asia to buy or order certain formats and programming inexpensively while having high-end production values. This benefited Telefónica because its subsidiaries produced for its own networks, saving the expense of buying content from others, plus it sold the content at a lower than average cost to other regional and worldwide networks through Telefe International.

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Film Telefónica also entered the film business. Although its investment in this area was minor compared to those in television and cable, its partnership with the film industry increased the company’s status and name recognition, publicizing it as a global media player. In 1997, Telefónica bought 33 percent shares in Lola Films, one of the most well established production houses in Spain (Variety, August 8, 1997). It did this as part of its diversification plan with the purpose of creating programming for its satellite pay-TV operation Via Digital and later Sogecable. In Latin America, it partnered with Disney to invest in two film production houses, Patagonik Films and Miravista, each owning an equal number of shares. Telefónica’s partnership with Disney elevated its profile, placing its brand among those few global groups that are sought after for production and distribution partnerships. Telefónica’s ability to strike business deals with other well-established global corporations was clearly based on the fact that it had solidified its telecommunications infrastructure and reach in different parts of the world. Its privileged position as a leading telecommunications company provided Telefónica an edge for successfully partnering with other global media corporations. Patagonik Film In the late 1990s Patagonik Film Group was the most important film company in Argentina, steadily producing the highest number of feature films. As elsewhere in Latin America, Argentinean film production slowed considerably due to the advent of neo-liberal policies and the retreat of state sponsorship of national cinema. However, Patagonik has produced nationally and internationally recognized commercial films such as Nine Queens (2000), and some Oscar nominees such as Son of the Bride (2001), The Last Train (2002), and Kamchatka (2002). All of these films were made with the backing of Disney and Telefónica, which entered into partnership with Patagonik in 1999. Patagonik is also one of the largest producers of television commercials, and it offers production services to local and international companies and producers who want to film on location in Argentina, Chile, Uruguay, and Brazil. Patagonik has been able to mobilize crews throughout these countries, producing a number of high-end films and television programs (Patagonik Profile, 2005). As of 2006, Patagonik’s major investors were Telefónica, Buena Vista International (a Disney subsidiary), and Artear Argentina, a subsidiary of Argentinean Clarín Group. Each owned a 30 percent stake in the company. Pablo Bossi, the founder of Patagonik Films, had 10 percent of the stock (finanzas.com, October 17, 2003; Patagonik Corporate Profile).

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Telefónica sold its shares in 2006 as it restructured to concentrate assets in its core telecommunications business (Variety, August, 2006).21 Despite divesting its shares of this production house, Telefónica remained a significant distributor in the media world. Further, the Telefónica brand did not suffer from this sale because it was an equal partner with Disney, which is one of the five largest conglomerates, in another production company. The initial partnership with Disney in Patagonik in 1999 led Disney and Telefónica to team up again in 2002, forming another film company, Miravista, that produces in Latin America. Miravista In 2002, Telefónica and Disney partnered to create Miravista, both with equal shares. Miravista operated principally in Mexico and Brazil, but it used other Latin American countries as locations as well (Carlstron, 2002).22 In 2002, when these two giant companies struck their new partnership, Disney CEO for Latin America, Diego Lerner, declared that Disney’s partnership with Telefónica was because of the company’s dominant position in telecommunications in the region and its control over different platforms across Latin America (Latin Trade, April, 2002).23 Taking advantage of incentive laws, especially in Brazil, to attract foreign film companies, Disney sought to position itself in the pan-regional Latin American market in order to produce films for international distribution at a lower cost. For Disney, producing a feature in Latin America cost an average of $1.5 to $2 million at the time (Latin Trade, April 2002). The partnership also reduced advertising and distribution costs and provided a built-in market for the company’s content because they could advertise in and distribute through Telefónica’s television and Internet platforms already established in the region. Miravista was a cost-effective business that gave Disney the possibility of generating large revenues. Setting up an enterprise abroad, like this one, not only cut production costs but also provided access to local writers, actors, and film and television professionals who already had a niche in their market. Investing in local talent to create quasi-local productions generated good regional revenues. At the same time, these films are exported to foreign markets interested in Mexican or Brazilian productions.24 The first film released under the Miravista label was Ladies’ Night, a movie co-produced with Televisa and Argos Communications from Mexico. This film was a success among young Mexican audiences (Variety, August 10, 2004).25 The most current film, an Oscar contender in 2008, was the Brazilian film The Year My Parents Went on Vacation (2007).

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Miravista produced other films with regional success and without much investment, triggering other Hollywood production houses to create domestic companies and partnerships in Mexico and Brazil. In order to further secure markets in Latin America, Miravista continued its association with Televisa and Argos in Mexico. It also created connections with the giant Venezuelan broadcast and entertainment group Cisneros, owners of Venevision. These connections were significant because the Cisneros group had investments in different broadcast, cable, and satellite television companies throughout Latin America, such as in Colombia, Peru, and Argentina (www.cisneros.com, 2007). In 2006, Miravista was well positioned in the market, and Telefónica was the primary distributor throughout Latin America. Disney and Telefónica do business together in the European market as well, where Telefónica is the exclusive distributor for certain Disney programs via mobile telephone. Lola Films In the 1990s, Spanish film production house Lola Films was one of the longest established companies in Spain. The main person behind Lola Films was producer Andrés Vicente Gómez, who had been in the business for over forty years. In 1998 at the Cannes Film Festival, Gómez received a lifetime achievement award (filmfestivals.com) for his long and successful career. Vicente Gómez and Lola Films worked with directors such as Carlos Saura, Pedro Almodovar, Fernando Trueba, and Gonzalo Suárez, along with several others of international renown. In the 1990s, Lola Films won an Oscar for the production of Belle Epoque, and several other productions had been recognized at Cannes and the San Sebastian Festival. In 1997, Telefónica partnered with Vicente Gómez, buying a 33 percent share in Lola Films and helping to finance the production of Belle Epoque and subsequent productions. This was considered a strategic investment for both Telefónica and Vicente Gómez. Telefónica would have a domestic production house from which it would earn revenues for its films, and, later, it would run those films on its television operations in Spain and elsewhere. For Lola Films, having secure television and cable outlets was a plus because it could produce content not only for theatrical distribution but also for television (filmfestivals.com).26 Under Telefónica, Lola Films opened a production house in the United Kingdom where Gómez envisioned creating productions in English for the Englishspeaking market. One of its major English language productions was The Dancer Upstairs (2002), a film directed by well-known actor John Malkovich. In its annual reports for 2001 and 2002, Telefónica was not optimistic about its

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prospects with Lola Films. Although the film company remained an important asset in the European market, Telefónica said it would lose money with Lola Films. Despite the doubts about profitability with Lola Films, in 2003 Telefónica became majority shareholder of the company, increasing its shares to 70 percent. This purchase happened right after Telefónica merged Via Digital with Sogecable. The greater control over Lola Films was intended to supply the payTV company with programming and revenues from selling content. By 2004, however, Telefónica divested all of its interest in the film company. Telefónica was beginning to restructure, focusing on its core telecommunications business. During the same year, it also divested shares from television producer Mediapark and publishing company Pearson (Rolfe, 2004).27 Telefónica’s return to its core telecommunication business did not imply that it was moving away from media; on the contrary, media had become highly important for its telecommunications operations since new technologies allow for distribution beyond traditional means. For Telefónica, the bulk of its revenues would be based on distribution rather than production. It appears that after Telefónica’s foray into media production, its executives decided that it is more important to be the carrier than the producer because producers will always need outlets for their products.

Conclusion This chapter mapped Telefónica’s expansion into media. A deregulated telecommunications and media environment in Spain and Latin America led Telefónica’s search for diversification and synergy. Deregulation allowed the corporation to merge with some companies and take over others, weakening competition in various markets. Purchasing local networks has decreased the value of national media systems as tools for cultural socialization and political action. Telefónica’s ownership of several important media outlets provided it with the power to shape global production and distribution of entertainment. Telefónica’s partnership with conglomerates such as Disney, Bertelsmann, and Pearson helped establish its position among the world’s media and telecommunications oligopolies, strengthening its brand value. During this period, Telefónica not only expanded but also divested its interest in many new holdings. This does not imply, however, that the company is losing ground as a global media player; on the contrary, it is repositioning itself as a primary cultural products distributor. Telefónica, already well established in Latin America offering multi-platforms to its associates, had become one of the world’s most powerful distributors of media content. At the

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same time, it was concentrating assets in telecommunications in Europe with the aim of becoming the continent’s primary content distributor via satellite, digital cable, Internet, and cellular telephones.

Notes 1. “The Media and Publishing Industry in Spain,” Business Spain, no. 98, 1996. 2. “Telefónica de España, Canal Plus Sign Pay TV Agreement,” Extel Examiner, July 27, 1995. 3. “Court Tells Telefónica to Close Cable Operations,” New Media Markets, July 4, 1996. 4. “Cable TV in Spain,” Business Law Europe, July 3, 1996. 5. “Cablevision Facing Spanish Inquisition,” Cable & Satellite Europe, no. 148, April 1996: 20. 6. Elena Ruiz Arguello, “Reign from Spain,” Multi-channel News International, 1995: 9A. 7. John N. Parry, “Spain’s TV Players Switch Sides,” The European, January 2, 1997. 8. “Telefónica to Buy 25 pct Stake in Antena 3 for 25.984 bln,” AFX News, July 28, 1997. 9. “Antena 3 Boss Hits out at Prisa Spain Agrees to Change Decoder Law,” Cable Europa 2(18), September 3, 1997. 10. “El gobierno admite que aprobo la compra de Antena 3 antes de cerrarse el acuerdo,” El Pais, September 18, 1997: 29. 11. “Telefónica compra el 3.6% de Antena 3,” El Mundo, September 6, 1999: 32. 12. Cayetana Alvarez de Toledo, “Telefónica eligio ‘politicamente’ al comprador de Antena 3 TV,” El Mundo, 4 de Abril, 2004, Año XV, Número 5.231. 13. “Planeta y De Agostine adquieren a Telefónica el 25.1% de Antena 3 TV por 364 millones de Euros,” Expansion, May 1, 2003. 14. “Telefónica SA-Acquisition,” Regulatory News Service, August 9, 2000. 15. “Endemol Empire Expands,” The Scotsman, August 12, 2000: 19. 16. www.endemoluk.com, December 3, 2003. 17. “Executive turmoil threatens future of reality TV powerhouse Endemol,” Reality TV World, December 30, 2003. Retrieved on March 1, 2005 from www.realitytv .com. 18. www.zeppotron.com, March 10, 2004. 19. David Smyth, “A site for square eyes the brilliant satirical website TVGoHome is itself turning into a TV show.” The Daily Telegraph, October 13, 2001: 7. 20. Jean Leston, “Growth strategies—The Path to Growth,” Growing Business, November 30, 2002: 39. 21. Anne Marie De La Fuente, “Disney’s Argentine Production Shop in Reorganization,” Variety, August 2006. 22. Johan Carlström, “Telefónica Media Unit Creates Latin Film Production Company,” Kagan World Media, January 2002.

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23. Mike Zellner, “Q&A,” Latin Trade, April 2002. 24. I do not discuss national cinema because it is out of the scope of this book. However, it is important to point out that issues of national cinema and what constitutes a national or local production are at stake. 25. Robert Koehler, Variety, August 10, 2004, “Ladies’ Night,” from www.variety .com, April 10, 2005. 26. An entire profile of producer Andrés Vicente Gómez can be found at film festivals.com/cannes98/html. 27. Pamela Rolfe, “Producer nabs Telefónica’s stake in Lola,” The Hollywood Reporter, November 12, 2004, 10.

6 Fundación Telefónica and Social Responsibility

UNDACIÓN TELEFÓNICA [THE TELEFÓNICA FOUNDATION] has been an important facet of the Telefónica group. It has been through this philanthropic organization that the corporation links itself to different sectors of society in order to have a positive social and cultural impact in the countries where it operates. In turn, Telefónica as a corporate entity has striven to gain the goodwill of its stakeholders, the communities where it conducts business, and the governments with whom it enters into contractual agreements. This chapter addresses the corporation’s general social responsibility ideals and practices and, in particular, several programs the Telefónica Foundation has sponsored. In recent decades, domestic and global corporations have found it necessary to develop policies and practices oriented towards corporate social responsibility. In an age of global interconnectedness, large segments of the population have been able to learn about and organize locally and globally against corporate expansion, misconduct, labor injustices, and exploitation of the environment. In response, savvy corporations have sought to minimize social instability and the possibility of public scrutiny disrupting their operations in countries where they have interests. Like several other global corporations, Telefónica incorporated socially responsible practices in order to remain competitive, add value to its brand, and ensure that it continues to have stable marketplaces to conduct business. Through its social responsibility policies and programs, Telefónica was also responding to EU standards set for European corporations operating within the union and in other parts of the world. The EU Commission’s first priority was to promote global expansion of European corporations in order to ensure the

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union’s economic growth. The commission also encouraged European corporations to demonstrate publicly that they are not operating solely for profit making, but are working to alleviate social and environmental problems that the world faces.1 The concept of corporate social responsibility is complex. However, various definitions coincide in stating that corporations need to be accountable to society and must participate voluntarily in addressing the well-being of their workers, the community, and the environment in the regions where they do business. The EU Commission defined corporate social responsibility as a “concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. It is about enterprises deciding to go beyond minimum legal requirements and obligations stemming from collective agreements in order to address societal needs” (EU Commission, 2006). Another definition, and perhaps the one most widely used, is put forth by the World Business Council for Sustainable Development (WBCSD). It states, “Corporate social responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large” (www.wbcsd.org). According to Jenkins, Pearson, and Seyfang (2002), the adoption of socially responsible codes by corporations, particularly those operating on a global scale, is “a manifestation of, and a response to, the process of globalization” (1). The concept of corporate social responsibility emerged in response to governments’ and peoples’ resistance to allowing transnational corporations to operate in their territories. In the 1960s and 1970s, many transnational corporations operating in the Third World were nationalized as part of decolonization processes. In Latin America, industries such as telecommunications, mines, and oil were nationalized as these states sought to regain control of human and natural resources as well as the national markets for local goods and services, following the economic ISI model. To stem the tide of nationalization, international regulatory bodies such as the UN Center on Transnational Corporations (UNCTC), the International Labor Organization (ILO), and the United Nations Conference on Trade and Development (UNCTD) proposed codes of conduct for transnational corporations (Jenkins et al., 2002). While some corporations adopted these codes, natural resource and labor exploitation remained the norm. In the 1980s and 1990s, neo-liberalism began to dominate the political and economic landscape worldwide. This policy has widened the gap between rich and poor in Latin America. Moving away from ISI, Latin American governments allowed corporations from industrialized nations to locate their pro-

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duction in their countries. Large corporations moved into poorer countries in order to save costs and avoid the more stringent labor and environmental regulations in their home countries. This brought about larger profit margins for these corporations but also created horrendous social and environmental consequences in the host countries. Low wages, lack of health benefits, lack of pension plans, and labor exploitation of women and children have characterized work conditions in these companies. Because transnational corporations have flooded Latin American markets, supplanting national ones, massive layoffs and the weakening of local trade unions have been the result of transnationalization and privatization processes. In Latin America as elsewhere, economic globalization has exacerbated long-standing social inequities and conflicts. Widespread concern among citizens, the emergence of global social movements opposing exploitative corporate practices, and a neo-liberal paradigm in general have been the main factors driving corporations to voluntarily adopt comprehensive social responsibility codes. Since the relatively high gross domestic product of industrialized nations depends greatly on the activities their corporations carry out not only domestically but also in the rest of the world, various governments and international organizations have been encouraging corporations to adopt these codes of conduct. The EU’s Green Paper on Corporate Social Responsibility (2001) pointed out that for businesses to succeed locally and internationally in the global era, their management must take into account that economic growth goes hand in hand with social cohesion and environmental protection (7). Corporations have found that it is to their advantage to adopt these codes of conduct. Social responsibility has been a practical matter and an investment that pays off in the long run for these corporations. Ostensibly, social responsibility works both internally and externally. Internally, it is intended to promote adequate working conditions and compensation as well as diversity in the workplace. Externally, it aims to secure the economic future of suppliers and investors as well as benefit the community where the corporation operates (Brenkert, 2004; OECD, 2001). Many global corporations have adopted the guidelines for social responsibility recommended by international organizations and governments. However, it is important to note that corporations generally choose to promote the social causes that will bring them the greatest level of public approval at the lowest cost (Farmer and Hogue, 1985). This makes it difficult to judge the ultimate value of corporate social responsibility. Some argue that it is a clever public relations tool while others maintain that it has a positive social impact. The reality is that the financial presence and influence of corporations and foundations in development and aid programs is a growing phenomenon. In

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poor countries where the state lacks funds, organization, and the political will to address chronic social problems and the power and wealth of many corporations exceeds that of the states in which they operate, as contradictory as it may seem, social responsibility programs carried out by corporations often aid development and alleviate social problems. The point here is not to argue in a Manichean way that corporations either cynically use social responsibility for public relations or have a positive social impact. Rather, I aim to point out that corporations are not invested in transforming societies as an end in itself but as a means to an end. They aim to ensure a basic level of social cohesion and political and economic stability necessary to continue to make profits. At the same time, we need to recognize that for better or worse corporate social responsibility programs have often filled a void in social services and cultural arenas from which the state has been absent, particularly in poor countries. The Telefónica group has been no exception. In Latin America, it has become a leader in fostering corporate social responsibility, primarily through its philanthropic organization Fundación Telefónica. Telefónica has designed its social responsibility strategy globally and locally. Executives have maintained that the group’s social responsibility activities differ from country to country. Adapting to different regulatory, social, and cultural environments, the company has attempted to be responsive to local needs.2 Telefónica has presented itself as a company that seeks to create equilibrium by serving and working with all stakeholders or interests groups—customers, employees, investors, and the community at large. Telefónica executives have expressed a clear interest in positioning the company so that it can play a major role in the development of the countries where it operates. Telefónica’s social responsibility has two main elements: first, an ethic of responsibility toward its employees, customers, and investors; and second, community engagement through Fundación Telefónica.3

Applied Social Responsibility Any corporation seeking to apply the principles of social responsibility must determine where and through which means it can have the greatest impact. Many corporations seek the advice of non-governmental organizations (NGO) or public institutions in order to assess the needs in a community. Working in collaboration with NGOs or public institutions provides a framework for action that goes beyond charity in order to create effective long-term plans that can be sustained over time (OECD, 2001). However, one should not forget that the issues chosen by a corporation would most likely be those that promote its

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interests and reputation. After all, social responsibility is an investment in the corporation’s brand image and its market. In terms of internal corporate social responsibility practices, Telefónica executives have routinely assessed basic labor conditions, particularly in Latin America where the company’s track record on this matter is problematic. The company has conducted periodic surveys to assess the satisfaction level of its employees in the workplace. Based on responses, it has implemented actions aimed at ameliorating deficiencies and softening possible areas of conflict. Labor stability has been one of the principal sources of conflict, and Telefónica’s social responsibility policies have been far from sufficient in addressing this problem. Chronic labor instability has created tension between the trade unions and Telefónica, creating an environment of internal animosity where the employees usually are at a loss, especially those who are not unionized or are hired temporarily. Only 162,000 of Telefónica’s 230,000 employees worldwide have job contracts regulated by collective bargaining agreements (Annual Report, 2006). In 2007, at least 15 percent of Telefónica’s workforce was made up of temporary employees. Although this number may seem small, the pattern is particularly worrisome when we look at specific subsidiaries. For example, the telemarketing subsidiary Atento has the highest number of employees working under temporary contracts, at least 32 percent (Annual Report, 2006; SUTTP, 2007). Telefónica’s employees have constantly struggled against the corporation’s lack of commitment toward them, particularly the youngest workers, who make up most of the labor force in Atento. Young employees with temporary contracts have been treated as disposable.4 If one of the tenets of social responsibility is to help secure the economic future of employees as well as shareholders, then Telefónica has yet to become truly socially responsible toward its workers. At present, the corporation has failed in this aspect and instead has contributed to economic instability and social upheaval. Telefónica’s internal social responsibility programs have not focused on the problem of labor instability. Instead they have sought to improve internal communication as well as offer more opportunities for employees to participate in shaping how the company approaches its customers and the public in general. Arguably, these gestures have been largely symbolic. In terms of diversity and equal opportunities for working at Telefónica, women have acquired a strong presence. In 2006, close to 50 percent of the group’s employees worldwide were women. Atento has been Telefónica’s subsidiary with the most female workers, with about 67 percent women in its labor force (Annual Report, 2006). Although women are part of the group’s diversity plan, they have been the most vulnerable sector in terms of labor instability since they make up such a large percentage of Telefónica’s workforce.

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Women have not been well represented in managerial or executive positions either. Some women have been able to obtain mid-managerial positions; but as of 2007, there were no women holding high executive positions commensurate with that of a CEO. This has not been just a problem within Telefónica, but reflects an overall cultural and social problem worldwide in which women remain excluded, for the most part, from positions of executive power. At Telefónica, the strong presence of women has been reflected in their numbers in the workforce but not in upper levels of management. Another area of internal social responsibility has involved providing educational opportunities for employees. One of the suggestions the EU Green Paper made to European corporations was to be proactive in the continued education of their employees. Responding to this suggestion as well as addressing its own needs for highly skilled workers, Telefónica has organized training seminars for its employees. The company has selected these seminars according to different needs and areas of specialty within the company. Employees have been admitted to these training seminars primarily on a merit basis and to a lesser degree on their individual skills and areas of expertise. This educational advancement has tended to be in the areas of marketing, commerce, administration, information technologies, and some other technical aspects oriented toward technicians installing and repairing hardware (Annual Report, 2006). In today’s globally oriented economy where many societies are becoming knowledge-based and technologically driven, corporations are looking for skilled workers, and employees need to train and retrain themselves in order to remain employable. This fact exerts pressure on the Latin American workforce in particular because most Latin Americans do not have access to higher education. There is no doubt that this educational advancement is beneficial for employees within sectors such as marketing, administration, and information technology. It helps them to remain employable in and outside of the company. However, Telefónica has not offered a broad educational horizon for its employees. The knowledge and certification programs the company provides mostly fit its own needs to help it remain competitive. The offer of educational advancement within a company also needs to be questioned in terms of who is participating and who is left behind. This tells us what areas of the company are more profitable and require the highest level of professional training. As we can see, then, social responsibility is not separate from profit making. In fact, it extends beyond internal policies to encompass the marketing of products and services to low-income consumers. Telefónica has a secure market among the middle and upper classes in Latin America, but must take extra measures to develop a market at the lowest income levels. Considering that

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this sector is larger than the other two, seizing the business of this group has been crucial to increasing its revenues. Hence Telefónica has been creating special programs that both comply with laws of universal access and are written into Telefónica’s social responsibility codes. One of these programs was a pre-payment offer for both fixed and mobile telephony. Customers did not need to prove credit worthiness in order to receive service. They were offered the basic tariff, which gave them a certain number of telephone minutes per month at a basic flat rate. Once those minutes were used, the phone line was switched off until the customer paid for more minutes. With this plan, the customer had the freedom to decide when he or she wanted to reactivate the service. This scheme responds to the informal economy in Latin American countries. People who depend on odd jobs and street sales may have money for phone service one month but not the next. Indeed, this program gave people who might not otherwise be able to afford phone service the chance to have it. By extending temporary service to a population with low and unstable income, the company was perceived to be delivering service to all while not jeopardizing its profits with customers unable to pay their phone bills. Another modality that purports to aid low-income consumers unable to buy cellular phones or maintain fixed lines is phone cards. These cards can be widely used for local, national, or international calls from public phone booths, home telephones, or cellular phones. Telefónica sells these cards at a variety of prices with certain allocated minutes. In many cases, using phone cards is less expensive than regular phone service, particularly in the case of international phone calls. The use of these phone cards has become an integral part of the informal economy, as street vendors sell them along with items such as bubble gum, cigarettes, and candy. Selling these types of items is often the only source of income for many poor people. Alleviating poverty and altering the conditions that create it requires not only a corporation but also the state and other institutions. However, one of Telefónica’s major social responsibility principles has involved trying to change these conditions. Fundación Telefónica has worked in collaboration with the International Labor Organization (ILO) and NGOs in twelve Latin American countries to eradicate child labor. The company has encouraged its employees to participate in one of the Fundación Telefónica’s programs, Voluntario Telefónica [Telefónica Volunteer], which helps institutions working with children. Through this program, many employees have been volunteering in schools, orphanages, and institutions for children with disabilities. This foundation has given Telefónica visibility as a positive force for social change. It also has given the company clear social responsibility goals and causes to support.

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The Social and Cultural Role of Fundación Telefónica Foundations are philanthropic private organizations that play a role in public affairs by channeling funds for different causes. Although philanthropy has always existed, organized philanthropy in the form of foundations, as we know it today, developed at the turn of the twentieth century. Industrial tycoons and wealthy families seeking to evade taxation and wanting to give some of their wealth back to society created foundations (Reeves, 1970; Dowie, 2001). The creation of foundations continued as wealth grew, particularly in industrialized nations where the world’s wealth has been concentrated. As corporations’ capital has grown, they too have become part of the philanthropic landscape. Like foundations created by individuals, corporate foundations are also able to set educational, technological, scientific, social, and environmental agendas. Through decisions about funding, they subtly influence public opinion, civil society, and government. Mark Dowie (2001) describes three waves in the development of foundations. Although he is primarily concerned with the history of U.S. foundations, his work is relevant to understanding foundations around the world because they have often modeled themselves after American foundations or are funding similar types of projects. The first wave of foundations in the early twentieth century worked to promote education and the advancement of technological and scientific knowledge. In the second wave, which gained momentum after World War II, foundations focused on reversing the social inequalities that persisted despite scientific advancement and economic growth. These foundations’ board members aimed to influence public policy and government, funding research geared toward social issues and public policy analysis. The third wave came about in the 1960s and continues to characterize today’s philanthropic institutions. The focus on social issues persists, but these foundations have sought to engage with civil society, grassroots organizations, and activists in order to advocate for civil and human rights. Most recently, many are focused on the environment and climate change. Throughout these three waves, the ultimate goal of most foundations has been to promote change and improve society. The extent to which they achieve these goals and the reasons and methods that inform their funding decisions are the subject of intense debate (Dowie, 2001). Founded in 1998, Fundación Telefónica has been a philanthropic organization financed by the Telefónica group. This foundation has been legally constituted under the laws of each of the countries where it operates. Although the Telefónica corporation operates directly and indirectly in over forty countries worldwide, Fundación Telefónica was in 2006 present in only eight coun-

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tries: Spain, Morocco, Argentina, Chile, Peru, Brazil, Venezuela, and Mexico. Fundación Telefónica has its own board and administrative council in each country. Its financial resources have been generated in each of the countries where it operates. The funding has been provided by all the group’s subsidiaries in each of these countries. Morocco is the only country where Fundación Telefónica has been administrated and supported directly from Madrid. Fundación Telefónica has assessed the different local needs in each country and supported social and cultural development. Among its institutional objectives, the foundation has supported the following causes: aiding vulnerable populations such as children, the elderly, and people with disabilities; promoting education through information and communication technologies; protecting cultural, historic, and artistic patrimony; promoting and disseminating contemporary art and new technologies; and researching technology related to communications and information technologies as well as technologies that may advance medicine, science, and culture. Like most large foundations, Fundación Telefónica has dedicated significant resources to education and the advancement of technological and scientific knowledge. Though they have been housed in different countries, all of Fundación Telefónica’s offices have shared a common vision, objectives, and work method. However, each one has acted independently, partnering up with local public institutions and NGOs in order to respond to local needs. NGOs provide the logistics and local knowledge, and many times their staff does the fieldwork as well. Internationally, Fundación Telefónica has partnered with multilateral organizations such as the Organización Internacional para las Migraciones (OIM), ILO, UNESCO, and UNICEF. These partnerships show us that Fundación Telefónica has become an important player in the development of Latin America, supplementing the role of the state and international aid organizations. However, this new paradigm of development where multilateral organizations are collaborating with corporate foundations raises concerns about conflicts of interest. For example, Fundación Telefónica’s relationship with the ILO merits particular scrutiny since Telefónica has had ongoing labor disputes that the ILO has been in a position to mediate. These relationships place corporate foundations in a privileged position to exercise leverage with these international organizations, particularly when the organizations regulate the parent corporation’s practices (Richter, 2001; Utting, 2006). When corporations or their foundations voluntarily join as signatories of international agreements with multilateral organizations, they gain an insider voice in matters that directly affect the environment, workers, consumers, and society at large.

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Fundación Telefónica’s Programs Fundación Telefónica was created in 1998. Its main objectives have been represented by five major programs: EducaRed [EducationNet], Proniño [Prochild], Forum [Forum], Arte y Tecnología [Art and Technology], and Voluntario Telefónica [Telefónica Volunteers] (Annual Report, 2007). The foundation’s primary focus has been education. EducaRed, which promotes information and communication technologies in education, has been the largest recipient of the foundation’s funding. Education has been a central component of Proniño as well. This program has aimed to eradicate child labor by providing children who would otherwise be working with educational opportunities. Arte y Tecnología has promoted contemporary art and artists. It also has funded historic and cultural preservation. This foundation has promoted the application of communication technologies to disseminate art, sponsoring the production of CD-ROMs, online virtual galleries, DVDs, and books. Through Voluntarios Telefónica, Telefónica’s employees have participated as volunteers in EducaRed, Proniño, and other community based programs in low-income schools, hospitals, and orphanages. Another program, Forum, has promoted research relating to information technologies and society. This program has gone hand-in-hand with EducaRed and Proniño, since it is of interest to the foundation and the corporation to document the use of information and communication technologies in education and other realms of social life. Later the foundation can provide this information to the parent company, which, assessing the impact of new technologies in educational programs, could enter into contract with governments to wire more educational institutions for profit. The foundation has not carried out any of these activities simultaneously in any of the countries where it operates. Because the foundation has operated on local budgets generated by Telefónica’s subsidiaries in each country, its funding has varied from one country to another as do the number of activities it has been able to carry out and support. For example, in Mexico the corporation has two subsidiaries, Movistar and Terra. Here, Fundación Telefónica primarily has concentrated on EducaRed and sometimes sponsored activities related to the preservation of cultural and historic heritage. In Argentina, Peru, Chile, and Brazil, Telefónica has a much larger presence. In these countries the foundation has carried out a series of activities related to its two central programs, EducaRed and Proniño. Furthermore, it has been heavily involved in art and cultural activities through its program Arte y Tecnología, particularly in Peru where Fundación Telefónica has played a major role in cultural and historic preservation.

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EducaRed Inaugurated in 1998, EducaRed has been active in Spain, Argentina, Chile, Peru, Colombia, Mexico, and Brazil. This program’s basic objective has been to advance education through the use of information and communication technologies, particularly to promote the use of the Internet for educational ends. The program has promoted the use of these technologies among students, teachers, and families and has aided elementary, secondary, and university level schools, as well as technical and trade schools (Telefónica, 2007). Depending on local needs, the foundation has provided computers, access to the Internet, and technical support. In schools where there are computers, it has provided access to the Internet and technical support. EducaRed partnered with local organizations in each country in order to be more effective in responding to local needs. In Spain, EducaRed has associated with teachers’ unions. Some of these unions, such as the FETE-UGT, STESIntersindical, and USO, have been well recognized in Spain.5 The fact that organizations traditionally averse to corporations have been showing a willingness to be associated with Fundación Telefónica has been a symptom of the diminished involvement of the state in educational matters. Corporations or their foundations have become prevalent in the educational sphere worldwide. The problem with this involvement is that corporations’ role as benefactor is far from neutral, as they stand to gain business opportunities for their parent corporation with the institutions and the populations they are helping. In Latin America, Telefónica has become partners with Microsoft. In Mexico, Peru, Chile, Argentina, and Brazil, EducaRed has been installing thousands of computers with broadband access in urban and rural schools, and Microsoft has been furnishing them with the necessary software. This generous gift by Fundación Telefónica has provided important tools for education in an era where knowledge of information and communication technologies has become an important factor in job placement. The one caveat, however, has been that once everything was installed and the foundation had fulfilled its role, schools were left to pay for broadband access and necessary software upgrades on which they had become dependent. As we know, software frequently becomes obsolete, sometimes within a couple of years, and Internet access needs to be upgraded. Hence, the intention to aid development has a less generous side to it in the form of creating and securing long-term markets. Through EducaRed and other Fundación Telefónica programs, generations of students have become acquainted with Telefónica and Microsoft products from an early age. As teachers and families have been also consuming these products, entire communities stand to become future (and probably faithful) consumers for these corporations. This scenario raises serious

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questions about corporate benevolence because the foundation appears to serve as a less than neutral mediator between the parent corporation, its associates, and the public. Proniño Child labor has been a widespread problem in Third World countries where considerable segments of the population live in extreme poverty. In 2006, the ILO (2006) estimated that about 218 million children were hard at work in the world. In Latin America, as in some other regions of the world, hundred of thousands of children have become actively engaged in supporting themselves and helping to support their families from an early age. Many of these children have been working in the streets as singers, car washers, shoe shiners, and other inventive trades to make enough money to survive. Others have worked in agriculture, in homes as servants, and in factories. Many have become victims of the sex industry. Education has not been an option for the great majority of these working children. Multilateral organizations, foundations, and other international aid groups have not been as proactive as they could be in curbing child labor or developing educational outreach programs for children at risk. The great majority of international aid has usually been allocated for development projects involving roads, water, sewage, and electricity (Hoy, 1998). For the most part, education has come last. It is only in recent years that these types of organizations have begun to pay more attention to the problem of child labor and to view education as a solution. Fundación Telefónica has become a part of these efforts to eradicate child labor in Latin America. Through Proniño, the foundation has cooperated with NGOs, public institutions, and some multilateral organizations to aid school programs that try to keep poor children in school. As of 2006, there were twenty-five thousand children enrolled in this program in twelve Latin American countries (Annual Report, 2006). Proniño has aimed to reinforce the notion that having children stay in school will be of greater social and economic benefit for children, their families, and their communities than if they leave school to work. Like EducaRed, this educational program has included the use of information and communication technologies. However, it has been more comprehensive since it goes beyond installing hardware and software. It has provided training to sensitize educators and staff to the needs of children living in extreme poverty so that they can help them stay in school. Proniño has involved a network of professionals from different organizations to pay close attention to the progress of these children.

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Proniño has been extending its work to educate people in Spain about the problem of child labor. As part of the World Day Against Child Labor, on June 12, 2007, Fundación Telefónica, the ILO, and the Agencia Española de Cooperación Internacional (AECI)6 organized the First Forum in Spain to address the issue of child labor. The forum aimed to raise awareness among the population. As part of the efforts by Proniño in Spain, this program partnered with Scream, an ILO program dedicated to the global campaign against child labor. One of Scream and Proniño’s strategies has been to educate schoolteachers and students in industrialized nations about the social dimensions and consequences of child labor in the global era. For this program to reach its goals, concerted efforts and a long-term commitment by many sectors of society in different countries will be essential. Although it has not been the foundations’ responsibility to secure the future of the thousands of children it has claimed to help, Fundación Telefónica does have a moral responsibility to exert influence at the highest levels of government and international organizations. The foundation has taken up this initiative by focusing on education as a solution. However, it must also press for the structural changes necessary to eradicate the causes of child labor. Corporations and corporate foundations have been able to lobby for their interests. A true commitment to eradicating child labor and, more importantly, the poverty that is its root cause, should be the task here. Corporations should use their lobby power to also press governments accountable for solving this problem. They need to create the conditions, along with governments, to cash in the social capital programs like the ones Proniño creates. The newly educated must be able to count on a prospective job beyond their education. Otherwise, Proniño runs the risk of becoming one more of the many palliative organizations that provide aid without foreseeing the future. Arte y Tecnología Fundación Telefónica has invested about 13 percent of its budget in promoting culture through its program Arte y Tecnología. In Spain, the foundation has maintained its own contemporary art collection and a telecommunications technology museum. The latter contains a collection of over ten thousand pieces, documents, and photographs that speak of the history of Telefónica since its start in 1924 (Telefónica, 2007). Both collections have been housed in Telefónica’s headquarters in Madrid. Parts of these collections have also been exhibited locally and internationally; Fundación Telefónica has agreements with museums and other organizations dedicated to art and technology exhibits.

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In Latin America, governments invest minimally in cultural activities. Official cultural policies are often enacted to great fanfare but ultimately become hollow as funding diminishes. Private funding is often the steadiest source for the arts and culture. Fundación Telefónica has become a major sponsor of cultural development and an agent of historic preservation. The foundation has become well known for its patronage of art exhibits as well as its development for competitive grants for individual artists and art groups, particularly in Argentina, Chile, and Peru. In these countries, the foundation has several activities promoting local artists and sponsors international artists in local venues. In Argentina and Chile, one of the major roles of Arte y Tecnología has been sponsoring contemporary painting, photography, music, and sculpture. In Peru, the foundation’s investments in historic and cultural preservation have become recognizable. Fundación Telefónica has also sponsored the publication of books and DVDs related to art and history. This foundation has played an important role in the cultural arena, precisely at a moment when the Latin American states have further diminished their involvement in it. However, questions arise when we consider how Fundación Telefónica defines art and culture. What kind of culture has been represented and preserved? Which sector of the public has enjoyed access to these efforts for cultural development? Fundación Telefónica’s annual reports and its official websites for the different countries suggested that the Arte y Tecnología program aimed to represent the local culture and history of these countries and their peoples. However, it did not define local culture or history. The cultures and peoples of these countries were treated as a homogeneous and monolithic whole; images of the most stereotypical places and faces were used to represent nations. These images were Machu Picchu, indigenous children from Guatemala, indigenous women from Peru, and so on. However, when we look at the type of art and culture sponsored we encounter something different. The foundation has sponsored international and national contemporary art exhibitions featuring well-known artists and up-and-coming artists. In this manner, we see the circulation of culture and artists whose names were already commodities among the wealthy or those who could afford access to museums and galleries. These exhibitions generally occurred at Telefónica’s own art galleries where the people invited were those in high circles of society. On the other hand, lower-class and indigenous art and artists have been absent from the cultural landscape promoted by Fundación Telefónica, unless it is the type that has been adopted and commodified by the intellectual middle or upper classes of these countries. Further, when presenting indigenous art it has usually been by painters from colonial times who created art for the church. While colonial art has historical and artistic value, it does not represent the local people of today. At any rate, colonial art is representative of an

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oppressive past. This reveals hegemonic ideas about what art is, reflecting the foundation’s status quo similar to that of the dominant classes in Latin American nations. Another factor involves the location where most of the activities and exhibitions have taken place. In Latin American countries, cultural and economic activities have been concentrated in capital cities or large urban areas. This is a legacy from the nineteenth century when capitals were considered the centers from which art, culture, and technology sprang. Whatever developed in other cities was not considered significant. Capitals were also the center of politics, bureaucracy, and wealth; other areas were irrelevant and only useful as places for exploitation of human and natural resources. This emphasis has been one of the major barriers to development in Latin America. To a certain extent, it can be argued that this model has continued with the main headquarters of Telefónica and its foundation being located in capital cities: Lima, Buenos Aires, Santiago de Chile, Mexico City, and so on. Thus, most of the cultural activity sponsored by Fundación Telefónica has taken place in the capitals, with some rare exceptions. Fundación Telefónica has put forth a great effort to preserve history and culture, particularly in Peru. This has manifested in the sponsorship of an online center featuring cybertours to historical and archeological sites.7 The foundation has also sponsored the production of a CD-ROM about the famous archeological site of the Lord of Sipán. In addition, it has sponsored, along with the Ministry of Tourism in Peru, grant competitions for people opening new routes to recently cleaned archeological sites. Choosing to invest in preservation and dissemination of particular ancient cultures is linked to national interest for developing tourism. However, this benefits only a small part of the population working in tourism while creating large revenues for transnational corporations operating airlines, trains, and luxury hotels.

Conclusion In recent decades, social responsibility has become an increasingly important element for domestic and global corporations seeking to deflect public criticism and improve brand image. Corporations have an interest in minimizing social instability and public scrutiny in order to safeguard their operations in the countries where they have interests. The extent to which they fulfill social responsibility is the subject of intense debate. In Latin America, Telefónica has been leading the way in making social responsibility an intrinsic part of its operations. Telefónica’s social responsibility code has extended to the internal realm, where it regulates relations with employees and consumers. Through

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Fundación Telefónica, its practice of social responsibility has extended to the wider social sphere, shaping education, public assistance, art, and culture in unprecedented ways. These far-reaching programs and codes of ethics have been aimed at developing and enhancing brand image and assuring a growing consumer market for Telefónica products. Telefónica’s notion of corporate social responsibility has challenged executives to consider new ways of conducting business so that better working conditions and partnerships with civil society to address social concerns are within their scope. Yet, as discussed in this chapter, social responsibility has not necessarily inaugurated a new era of corporate benevolence but is in fact a sophisticated marketing tool. As part of its social responsibility, Telefónica has created Fundación Telefónica for which education through information and communication technologies is the priority. The support of cultural activities, the use of technology in art and science, and historical and cultural preservation are second in the agenda. Education has been one of the biggest challenges of the twentieth century in Latin America, and despite tremendous progress in terms of literacy,8 poor school systems remain a constant. The lack of strong and sustainable financial support from governments and international development organizations to ameliorate educational conditions has often left the poor in the hands of corporate foundations. Fundación Telefónica, like many other corporate foundations in the world, operates as the good face of the parent corporation. This foundation is playing a crucial role in shaping education in public schools throughout Latin America in the twentieth-first century by providing access to ICT and helping implement training for teachers, parents, and staff members of collaborative organizations. Fundación Telefónica’s agreements with governments and NGOs to furnish schools and universities with hardware and software have been growing. Given the limited resources of state funding for this type of endeavor, Fundación Telefónica’s role in public life will most likely continue to increase. However, as it continues to improve education systems and attempts to close the digital divide, the market for its parent corporation and its associates, such as Microsoft, will grow. This type of educational philanthropy is always questionable. The intent to further education in public schools and help the most needy attain education as a means to end child labor also aggrandizes the promotion and expansion of corporate interests. In terms of cultural patronage, it is evident that for the most part Fundación Telefónica has reflected the status quo of Latin American countries’ middle- and upper-class worldview of culture and art. The concept of historical and cultural preservation has also served to primarily perpetuate ancient and colonial cultures as symbols of a better past.

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Notes 1. Several segments on this chapter are drawn from the Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee. Implementing the partnership for growth and jobs: Making Europe a pole of excellence on corporate social responsibility, Brussels, March 22, 2006. 2. Telefónica comments on the Green Paper on Corporate Social Responsibility, last accessed on June 22, 2005. 3. Various segments in the chapter are based on interviews with Telefónica CEOs Rafael Varón, director of Peru’s Fundación Telefónica, and Mario Coronado, Peru’s Telefónica manager for corporate social responsibility. Interviews were granted in September 2006. 4. More information on labor practices and conflicts can be found in official websites for telecommunications’ trade unions and international organizations for telecommunications. Suggested: sitentel.org.pe, suttp.org.per, citel.oas.org, union-network.org, ugt.es, and sitratel.org.ar. 5. Federación de Trabajadores de la Enseñanza de UGT (FETE-UGT). Federación de Enseñanza, Unión Sindical Obrera (USO). Confederación de Sindicatos de Trabajadores de la Enseñanza (STES-Intersindical). 6. Agencia Española de Cooperación Internacional (AECI [Spanish Agency for International Cooperation]). This is a government agency with significant involvement in Latin America since the 1980s. Several of its projects are part of Spain’s foreign policy strategies for Latin America. 7. For example, visit the Centro Cultural Perú Virtual [Virtual Peru Cultural Center], www.perucultural.org.pe/peru.shtml. 8. About 93 percent of the adult population in Latin America is able to read and write (UNESCO, 2006). However, this does not mean all have secondary or higher education. This percentage masks big social and economic differences that have worsened since the adoption of neo-liberal policies in these nations.

7 Telecommunications: Culture and Politics

into Latin America at the end of the twentieth century and beginning of the twenty-first century has meant greater access to fixed line telephones and a significant rise in the use of cellular phones and the Internet. The Internet and cell phones have rapidly become important artifacts in the daily life of millions of people. Although rural areas and the poor still lack widespread access to these new technologies, Latin America’s growth in the use of these technologies, particularly the cell phone, was higher than that of other developing areas in the world in 2007 (ITU, 2006; internetworldstats.com, 2007). This has largely been due to Telefónica’s business model of expansion and peoples’ interest in having these technologies. We should understand this growth not only within the confines of the functional aspects these technologies offer and the impressive marketing by corporations like Telefónica to promote consumption, but also within the cultural, economic, and political dimensions these technologies have in the Latin American context. In this chapter, I focus on the Internet and cell phones. I discuss how an Internet culture has developed without state support in Peru as a medium accessible to the poor. Then I address the use of cell phones in helping to organize social action in the state of Oaxaca, Mexico. Three questions will be examined: How do the Internet and cell phones affect culture and politics at grassroots levels? How do local cultures and necessity affect the use of these technologies? And how do people use these technologies to socialize? In order to answer these questions within the two contexts that I will discuss— Peru and Mexico—we have to understand, as explained by Daniel Miller and

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Don Slater (2000, 1), that the Internet and cell phones are not monolithic technologies but rather technologies in flux with multiple users in specific locations within particular cultures and political circumstances.

The Internet: A Window to the World The Internet has generated a lot of discussion about its potential to be different from other mass media. Much has been said about its potential to aid economic development, advance education, and promote democracy (Wilson and Heeks, 2000; Singhal and Rogers, 2001), especially when analyzed in the context of poorer countries. Others feel that the Internet has lost its ability to be different and egalitarian. Still others suggest that the Internet no longer promises to improve culture or politics; instead, it has become a sphere pervaded with content similar to that of commercial media where information is shaped and delivered by consumer-oriented enterprises (McChesney, 1998). Within this view, the Internet and other new technologies are simply part of the political and economic structures whose principal goals have been to shape, deliver, and profit from disseminating information (Keohane and Nye, 2001). These arguments are all valid since the Internet is not neutral. The Internet depends on producers and consumers who upload and download all kinds of information regarding economics, politics, and culture. As the Internet becomes more available in different parts of the world, we see a multiplicity of possibilities and diverse uses for average citizens, commercial entities, and grassroots organizations. With its diverse and seemingly infinite number of portals, websites, homepages, and blogs, the Internet reflects the aspirations, directions, and needs of different people and their societies. Jordi Borja and Manuel Castells (1997) remind us that although the structure of the Internet is global, the experiences people have with it are local. Locally, the Internet acts, as many people say, like a window to the world. When the Internet arrived in Latin America it was for institutional use only. The Internet in Latin America was understood as a fast tool for communication, meaning the sending and receiving of institutional e-mails, information, and communications. Government offices, NGOs, and some universities were the first to make use of the Internet for a few years before it became commercialized for public consumption. The initial transfer of this technology to the wider public took place through efforts from NGOs. Some of these NGOs served as Internet service providers (ISPs), offered workshops, trained people on the technical use of the Internet, and showed people that it could be a tool for global networking and organizing. Perhaps the most exemplary case of In-

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ternet usage has been in Peru, whose model became replicated in other Latin American countries. In 1994, the Red Científica Peruana (RCP), a local NGO formed by a group of academicians interested in disseminating access to the Internet, set up the first cabina pública [public booth] with forty computers. Cabinas públicas have become known simply as cabinas. A cabina is a room that houses computers connected to the Internet. This model created communal access to the Internet and allowed any citizen to use it at a low cost. In this sense, cabinas have provided universal Internet access to low and medium income sectors of society who cannot afford it at home. The RCP made its first cabina a space for citizens to learn about and try the new technology. The RCP offered training on setting up e-mail accounts, navigating the Internet for information gathering, building homepages, as well as other services. The efforts of the RCP at that time were aimed at recruiting people who wanted to set up cabinas in different parts of Lima. The idea was to make this new technology available to as many people as possible. The RCP offered workshops geared toward small entrepreneurs and citizens who could make small investments of $3,000 to $10,000 (yachay.com, 2007).1 Many who attended these workshops opened cabinas in neighborhoods, plazas, and markets. This was a way of democratizing the access to this new technology that otherwise would have been exclusively the domain of the rich. The initial growth in the number of cabinas was between 1997 and 1998. During this time, professionals who had been laid off with compensation packages turned to the RCP to help them set up cabinas. Other people bought one or two computers and requested Telefónica’s Internet service. All of a sudden, home garages and rooms with doors to the street became cabinas. These appeared to grow organically, sprouting in different areas, first in Lima and then in other cities. Cabinas became a solution to the lack of economic prospects, providing a steady source of income for thousands of Peruvians. At the same time, they offered connectivity to the middle class and poor. Today, cabinas are ubiquitous in almost every city. In 2005, it was estimated that in Lima alone there were more than six thousand cabinas. About 85 percent of Peruvians use cabinas to access the Internet (Fernández-Maldonado, 2005; Jesús Guillén, 2006).2 Journalist Liliana Guerra indicated that Peru in 2006 had a total of 33,635 cabinas.3 Peru has become one of the leading countries in Latin America for Internet access due to the growth in cabinas (Guerra, 2006). One cannot deny that a social divide persists in terms of hardware ownership, but the gap has been diminishing in terms of Internet access and Internet know-how, especially in urban areas. Internet access is no longer exclusively for the privileged bureaucratic or economic sectors of society; instead, it has become a part of life for millions of people across all social groups. Cabinas have

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become an integral part of the landscape of neighborhoods, downtown areas, and markets. This encouraging scenario, however, indicates that the proliferation of cabinas has also been a symptom of economic disparities because the vast majority of the population who cannot afford a telephone line or a home computer and lack access to institutions connected to the web, such as schools or universities, have had to turn to cabinas for many of their communication needs that may require the use of the Internet. This scenario worsens if we look at rural areas, despite efforts for inclusion. After the initial RCP drive to promote cabinas, the growth in cabinas has been independent from NGOs or any state efforts. In fact, the Peruvian state has not played a significant role in the development of the Internet in the country. The increase in the number of cabinas has been linked to the entrepreneurial spirit of people mostly operating in the informal sector. The informal sector encompassed the urban poor and a middle class that had fallen down the economic ladder. Drastic social and economic changes and lack of career opportunities throughout the 1980s to the present forced thousands of people to look for alternative and creative ways to earn a living. Many cabina owners have been professionals who could not find work or were underemployed. Some owners open their cabinas to supplement their income. Many families pulled their resources together to run a small family venture of cabinas. Others opened cabinas with money sent by relatives living abroad (Guerra, 2006; Fernández-Maldonado, 2005). Since the turn of the twenty-first century, most small investors have connected their terminals to Telefónica, which has become the largest ISP in the country with its new product Speedy. In 1997, Telefónica began offering Internet service through its products Infovia and Unired (Fuentes-Bautista, Straubhaar, and Spence, 2003). Infovia offered dial-up mostly for homes, and Unired was for commercial businesses and offices. Telefónica began to dominate the Internet market because of its exclusivity contractual agreement with the government, its infrastructure, and its expansion of fixed lines. Other ISP companies complained to OSIPTEL, accusing Telefónica of anti-competitive practices. Telefónica’s exclusivity agreement ended in 1998; however, it remained one of the major ISP providers because of its major investment in tending fiber optic networks. In 2001, Emergia, another subsidiary of Telefónica, invested over $1 billion to build the first fiber optic ring around Latin America. Emergia tended terrestrial and undersea fiber optic networks, connecting major Latin American cities, such as Lima, Buenos Aires, Santiago, and Rio de Janeiro. It also connected Latin America with the United States and Europe (Annual Report, 2001; Emergia, 2007). After this technological improvement, the company began offering its new product Speedy, which has largely replaced Infovia and Unired.

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The Promises and Perils of Offering Connectivity At the turn of the century, cabinas were such good business that the RCP franchised its model to hundreds of small entrepreneurs. The cabinas boom stimulated the emergence of micro-enterprises dedicated to providing installation services all over the country. The installation companies provided computers loaded with software, printers, burners, scanners, and wired the cabina, making it ready to be connected to the ISP. The installation cost for a cabina with five computers was an average of $3,500 in the late 1990s. The installation cost of twenty computers was an average of $13,000.4 However, there have not been many cabinas with twenty units, obviously due to the cost. These prices have not changed dramatically. Owners of cabinas have been able to make a living while providing accessible prices to the public. The cabina business was such a success that an association of cabineros was created, Asociación Peruana de Empresas de Servicio del Internet (ASPESI). However, the boom of cabinas may be slowing since some owners have said in 2007 that a cabina is no longer a good business. In fact, competition has grown so much that rental prices have been dropping and, while this has been good for the public, it has not been good for many of the small entrepreneurs. Another problem has been that most cabinas are furnished with discarded computers from the United States bought by the installation companies, which has presented serious concerns. Second-hand computers face a shorter life and soon need upgrades or replacement. Many people who invested in the past two to five years now need to reinvest in equipment. This has forced some owners to close their businesses (Paucar, 2004).5 ASPESI has been blaming the cabinas slump on installation companies recruiting too many investors and glutting the market. ASPESI members have been discussing setting a price that would allow owners to profit and reinvest (Paucar, 2004). However, the main problem with increasing prices is that the large majority of the population accessing the Internet through cabinas would not be able to afford the higher prices. This would deter the use of cabinas and set back the impressive gains made in Internet access and connectivity. After thirteen years, the successful cabina model may no longer be sustainable. Uses The basic functions of the Internet in these cabinas have been for personal communication, entertainment, and education. As of 2007, the great majority, about 92 percent of people, used the Internet for communication via email and chat rooms. The number of people from all social levels who migrate internally and externally is large; hence, the Internet has been widely used for

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keeping in touch with family members and friends. In a study conducted in 2001, most people using chats in cabinas were between twelve and twenty-four years old. Over 50 percent used the Internet for entertainment, and over 75 percent for downloading information (Cerna de la Torre, 2001).6 Recently, Voice over Internet Protocol (VoIP) has become available and has been catching on because its services are still free or relatively inexpensive compared to Telefónica’s prices and phone cards. Besides connectivity and other functional aspects, cabinas have also become spaces for social activity. Unlike industrialized countries where Internet use takes place with a certain level of isolation (it is an individualistic task to be part of the global), the use of the Internet in cabinas has been a collective activity. Cabinas have become the cultural equivalent of plazas, the centers where social interactions take place. In many neighborhoods, cabinas have become a meeting place regardless of Internet needs. This has been the case with young people who go to cabinas to hang out. Going to cabinas has become an after-school activity for many schoolchildren who split the cost of the rental and browse the Internet together, bragging about their Net-browsing savvy and sharing their favorite sites for homework information, cyber-friends, games, and other amenities the Internet offers. Also, young people have tended to act as mediators between the Internet and their parents or older relatives, especially in low-income sectors, and many young people have become the typists and navigators for the older relatives. Cuzco: Cybercafés, Tourism, and Local Culture (An Ethnographic Approach) Cuzco, Peru, is a world destination where thousands of tourists travel every year. This is the former capital of the Inca Empire, and its major attraction is the citadel of Machu Picchu. Tourism in Peru took off in the mid-1990s, after a long period of little tourism due to an internal war in the country. The end of this war coincided with the entry of Telefónica into the Peruvian market. Cuzco, recovering its status as a world destination, became a sought-after place for investment. Telefónica, having recently purchased the national telecommunications system, moved fast to improve the telephone grid in the city of Cuzco. The rapid expansion of fixed lines included surrounding areas, particularly those along the Sacred Valley of the Incas, a well-visited area and passage toward Machu Picchu. Soon after the expansion of fixed lines, Telefónica began offering access to the Internet. By 2000, its offer included wireless access protocol (WAP) to use cell phones for accessing the Internet from remote places where there were no fixed lines (OSIPTEL, 2001). This was ideal for people in the tourism industry who leave the city on treks that last several days.

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Initially, Telefónica’s main customers in Cuzco were luxurious hotels, hostels, big travel agencies, and the airlines. Most of these facilities in town adopted the Internet almost immediately. Hotels wanted to have the Internet as an amenity to offer to their guests. Many hotels, especially the less luxurious ones, would advertise having Internet access in order to attract customers. The Internet also became a tool for advertising local services worldwide and conducting long distance sales faster at a lower cost. The Internet was the ideal tool for the reemerging tourism industry. Local entrepreneurs and common citizens have said that Cuzco quickly became part of the globalized world because it is connected to the Internet. The concept of globalization is mostly understood and described as connectivity and exposure to the world. According to many in this city, the major advantage of the Internet for tourism is that Cuzco is out there. A big part of tourism and culture in Cuzco are the coffee shops in the main plaza and surrounding streets. Each coffee shop tries to create a unique atmosphere, but most are similar because they cater to local elites and tourists. To keep up with the hotels in technological terms many of the coffee shops in the plaza are now cyber cafés, or, as they are called locally, café Internets. Most café Internets have at least two computers and some, such as Trotamundos Café, a more upscale coffee shop, have six. Trotamundos Café is the only café Internet in the plaza that has a separate room within the coffee shop dedicated exclusively to Internet access. This offers more privacy to those using the Internet and preserves the atmosphere of the coffee shop. In other café Internets the computers are placed at a corner or along a wall and anyone can see the screen. The alignment of computers in these places is similar to that in the cabinas. Local people make a clear distinction between café Internets and cabinas. The most salient distinction between these two is that in café Internets one can consume food and drinks while cabinas are only for Internet use. Café Internets are mostly for tourists and locals with economic affluence; cabinas are for everyone else. In some downtown areas one can also find tourists using cabinas. In general, the cost of renting time in cabinas is cheaper than renting at café Internets. In 2006, the rental price at café Internets was about 90 cents per hour while cabinas charged about 50 cents per hour. Although café Internets do not make the bulk of their income from renting computers, they use the availability of Internet access to attract more business from tourists and some local people. Café Internets and coffee shops in downtown Cuzco are institutions where four types of populations mingle: tourists, cuzqueños (people originally from Cuzco), limeños, and expatriates. Limeños are people from Lima, the capital. Many limeños migrated to Cuzco in the 1980s and 1990s searching for job

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opportunities in tourism. Most of them settled in Cuzco and work for travel agencies as tour guides. There is a small group of expatriates from the United States, United Kingdom, Germany, and Japan who are also connected to the local tourism industry. Some of them own travel agencies, gift shops, pubs, restaurants, and bars. Many others work as tour guides. Most of these people are regulars in the coffee shops located in the Plaza and surrounding streets. The regulars of these coffee shops know the owners and employees by name and feel comfortable patronizing these places for hours even if they are consuming only a cup of coffee or nothing at all. Some go on such a regular basis that their schedules are predictable. One can also use the coffee shop as a place to leave messages for friends or regular patrons and know that they will get the message. Most regulars and locals do not go to coffee shops to use the Internet exclusively; they go primarily to socialize with friends or converse with tourists, although checking e-mail, surfing the Internet, or chatting can be part of their visit to the coffee shop. For some young adults in their twenties and thirties, these coffee shops are places to meet tourists for potential affairs. Some even hope to migrate with the help of a newfound friend. There are some young people, local and nonlocal, who spend time at café Internets with the sole purpose of forming relationships with tourists. These people are known as bricheros(as).7 Bricheros have many cyber-friends from different parts of the world and keep in touch with tourists they’ve met via e-mail and chats. In conversations with some of them, they indicated that the Internet is highly important to them. It teaches them about the world and provides them with topics of conversation for when they pursue a tourist as a friend or lover. Bricheros browse the Internet to learn about countries so they can talk with tourists about their homeland and show them that they know some of the tourists’ customs, cultural beliefs, politics, and so on. Bricheros have learned how to capitalize on their Internet-acquired knowledge, and, for the most part, it seems to pay off. It is not unfamiliar to see a brichero at a coffee house in a long conversation with a young tourist, and part of the conversation is about things learned on the Internet, whether about current events, cultural things, or entertainment. Café Internets tolerate the presence of bricheros, and to a certain extent they have become part of the local folklore. In Cuzco, young people (ages eighteen to twenty-five) use the Internet mostly for connectivity, gathering information, and work. Young adults think of the Internet in a more positive light than older people do. This is understandable because people accessing the Internet with more frequency are the younger generations. Young adults are not concerned about Internet content’s potential influence on them. Many express the importance of choice in choosing what to consume or be exposed to on the Internet. Users feel

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strongly that it is the parents’ and teachers’ responsibility to monitor what children access. In cabinas where kids go, owners or employees usually monitor what children are accessing on the Internet. Cuzco is still a society where adults in public spaces play a role in regulating younger people even when they do not know the youngsters. Most children using the Internet in public places do it to access information for homework or to play Internet games. However, some people are concerned about certain cabinas where youngsters are being exposed to pornographic sites. Authorities are not yet regulating or intervening to place age restrictions on these cabinas. After talking with some young students in Cuzco about Telefónica’s virtual monopoly in the telephony and Internet business, I found that many do not mind that Telefónica is the main provider of these services. Their main concern is having access to the technology. They feel empowered by the technology and somewhat equal with the rest of the world by virtue of having access to the Internet. They express that their ability to see the world through the Internet is a right that everyone should have. The idea of a new form of colonialism by Spanish corporations is a topic that did not resonate much with them. Marcelo L., a university student, said, “To be honest, I am not interested in who is the provider. The important thing is the service the company provides.” William B., another student, said, “[Telefónica] is a company that has opened new doors for us. It has helped us to be part of globalization. It has brought us cable television and the Internet.” However, when I explained to them that Telefónica remits billions of dollars in revenues to its parent company in Madrid, they reacted unhappily. At the same time, they said that if it were not a Spanish corporation exploiting the local market it would be some other foreign company. Young people seem to have internalized Peru as a place where there is no economic future for local investment in telecommunications. In order to keep up with the rest of the world, they see an inevitable and inherent need to have foreign corporations operating in their local markets. Older people are more critical of the presence of Telefónica. They refer to the company as colonialistas [colonialist]. While some older people believe the Internet is good for younger generations, they think that it is a shame that a Spanish company is the main ISP.

From No Phone to Cell Phone The indigenous uprising of the Ejército Zapatista de Liberación Nacional (EZLN) in the state of Chiapas, Mexico, became in 1994 a legend when they used the Internet to draw national and international attention to their cause.

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This was the first moment in history when international support for indigenous people and a guerrilla movement was raised at an unprecedented speed (Ronfeldt, 1998; Cleaver, 1998). Since the Zapatista rebellion, the Internet has continued to evolve. The arrival of broadband in Latin America and the capacity of the Internet to transport and process information beyond text (audio, still, and moving images) quickly and simultaneously has brought about new uses for it. The Internet continues to be a tool that can be used for peoples’ self-determination and political action. While the Internet remains important, the cell phone has become the new technology that is revolutionizing the way we communicate interpersonally and en masse. In addition, cell phones are changing the way in which events are reported and social movements coordinate their struggles. In Latin America, as in many other developing countries, many people have gone from not having seen a phone before to having a cell phone. They have jumped over the cumbersome and expensive infrastructure required for fixed lines. Cell phones have democratized the telephone from an item that was primarily common in middle- and upper-class households and in urban areas. The urban poor and rural people never imagined owning a phone at home. In many cases, rural inhabitants have not even seen a telephone. This scenario, however, has dramatically changed. The gap between phone users has grown smaller as Telefónica and other wireless companies expanded markets. Telecommunications corporations have been including rural areas close to urban towns in their expansion agenda. In 2006, about 70 percent of the Latin American population used cell phones (ipsnews.net, 2006).8 With this large number of people accessing cell phones and the newer capabilities that many of the handsets have for text, picture, video, and music downloading and uploading, it is not surprising that cell phones play a role in daily life as well as in local and world events. The cell phone has been described as the new cultural, convenient, and portable gadget. It has allowed people to stay in touch, monitor children, construct identity, take pictures, and download music. It has also become a means for disseminating news when traditional news cameras are not present (Goggin, 2006, 2; Gordon, 2006, 46). For example, combined with other technologies, the cell phone played a role during the Sumatra-Andaman earthquake and Indian Ocean tsunami. Average citizens and tourists used their cell phones to become temporary journalists, reporting events as they unfolded (Robinson and Robinson, 2006). The cell phone has also played a critical role in social mobilizations, such as the 2001 Philippine Island uprising ousting President Joseph Estrada from power and the 2004 Orange Revolution where election fraud was challenged by thousands of citizens (Pimentel, 20019; Rafael, 2005; Zuckerman, 200710).

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The cell phone has empowered average citizens, giving them the opportunity to become both citizen journalists and social activists. This was evident during the emergence of the Asamblea Popular de los Pueblos de Oaxaca (APPO),11 a social movement born in Oaxaca, Mexico, on June 17, 2006, when citizens used cell phones at crucial moments to report events and organize. This social movement reached its apex when Oaxacan women took over the state-run radio and television stations Corporación Oaxaqueña de Radio y Televisión (COR-TV). Although the use of old media has been the center of academic attention, I would like to address the role of cell phones during the twenty-one-day occupation of COR-TV. Cell phones were crucial for the women to receive and disseminate news, to organize, to maintain security, and to keep in touch with loved ones. Cell Phones, Radio, and Activism The rapid adoption of cell phones in Mexico began in the mid-1990s. In 2005, 46 percent of the population owned a cell phone. Although Mexico is an open market, the market has been controlled by a duopoly. The two main providers are Movistar, a Telefónica subsidiary, and Telcel, a Telmex subsidiary. Since there is practically no competition, prices have remained relatively high, but cheaper than fixed line service. Most people were using prepaid cards or the pay-as-you-go system.12 Text messaging (SMS) has become a cheaper option; it has been free if sent among cell phones sharing the same provider and less expensive than a telephone call if sent to a cell phone from another provider. In 2006, cell phones became incredibly useful for the people of Oaxaca. Perhaps without realizing the value and role their cell phones would take on, they embraced the new technology, using it for personal and professional purposes. In Oaxaca every year in May, the teachers have plantones or sit-ins. Plantones have become part of their annual negotiating strategy with the state’s government. The teachers’ yearly demands have included books for students, improvement to school buildings, and higher salaries. In 2006, as in any other year, thousands of teachers, some with their families, camped out in the main zocalo [plaza]. On June 14 at dawn, the police entered the zocalo, surrounding the teachers while they slept. The police woke the teachers with tear gas and knocked down their makeshift plastic tents. The police also set fire to peoples’ belongings and brutally beat men, women, and children in an attempt to evict them from the zocalo. The zocalo and surrounding streets became a battleground between teachers and police. This is the moment when cell phones became crucial to what would become an emerging social movement. Teachers who owned cell phones began

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calling family and friends to let them know of the police attack. In a short time, the city of Oaxaca became aware of the events taking place downtown. Relatives, friends, citizens, and the media rushed to witness the attempted eviction. Citizens were spreading the news via cell phone to friends and relatives in Oaxaca and throughout Mexico. Radio journalists relied heavily on cell phones to be able to report the events. Due to the use of cell phones, the news was on radio before it was on television. After these events, a large majority of Oaxacans who opposed this brutal treatment of the teachers became not only sympathizers but also activists against the governor of the state, Ulises Ruíz Ortiz. They created a widespread urban social movement, the APPO. The movement, a coalition of hundreds of civil society organizations, local unions, and thousands of common citizens, organized several marches demanding the resignation of the governor. This movement also articulated a position against neo-liberalism and all transnational corporations, including Telefónica. On August 1, 2006, thousands of Oaxacan women took to the streets and marched, noisily banging their pots and pans. The march was later called La Marcha de las Cacerolas (The March of the Saucepans). The women marched to COR-TV and demanded control over the airwaves. The women argued that the people have the right to revoke the public airwaves entrusted to the state if the state is not impartially and properly informing the population. The women believed that the state and its representatives failed to represent the people. They also said that the public media was following the lead of private networks like Televisa and TV Azteca. These private networks were known as biased, privileging the government’s perspective and partially informing the population of local affairs. The women decided that the private media should lose its right to the public airwaves.13 The general manager of COR-TV, Mercedes Rojas Aldaña, and most of her employees had no choice but to leave the station. The women, with the help of a few remaining employees, aired their first program on radio and television, telling Oaxacans of their conquest: a conquest for women, the people of Oaxaca, and the APPO movement. The possession of the state-run radio, which the women renamed as Radio Cacerola, helped the movement gain momentum and created a central space from which to articulate what the movement was about at any given moment, consolidating social and political cohesion. Symbolically it demonstrated the power of the people over the state. The physical structures of the radio and television stations and the transmission towers became symbols of reconquered spaces. International news of this unprecedented event was marginal. Nationally, the mainstream television networks, Televisa and TV Azteca, presented this social movement as corrosive and destabilizing to the economic and social order

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of Oaxaca. Some tourists, researchers, and local bloggers using cabinas and cybercafés disseminated more news over the Internet than mainstream media did. The APPO controlled the airwaves for twenty-one days. During this time, cell phones proved to be a key element for participatory journalism and social activism. Cell phones, together with radio, served as a broad-distribution network that was accessible to the masses not only in the city of Oaxaca but the entire state. The radio, as a symbol and center for organized action, acted as a central command post in this struggle. Cell phones served activists and citizens by connecting them with the radio to deliver information, voice their opinions, and debate the situation through calling-in or texting. Common citizens volunteering to cover slots to have ongoing programming became radio deejays. They played regional music, addressed women’s health topics, informed about APPO plans of action, and discussed indigenous rights. In the radio booth, there were two cell phones dedicated to receiving calls from citizens. People called to request particular music, ask about health concerns, and learn where to go for more information. Some indigenous people in the countryside who had been following the situation in Oaxaca through the radio called to voice their opinion. Others called to complain about their precarious living conditions and discontent with the government. Citizens also called when they saw suspicious men who appeared to be undercover police or paramilitaries near the zocalo, the radio station, television towers, and the facilities of COR-TV. Some people called in to express support and others to repudiate the movement. All of these calls were retransmitted to the public by putting the cell phone close to the microphone. There was a sensation of an ongoing collective dialogue brought about by people using their cell phones and the radio as the mediator of this collective conversation. The main feature of cellular telephony is its mobility. The fact that a user is reachable almost anywhere and can call, send, and receive text messages on the go is what distinguishes cell phones from fixed lines and the Internet. Another characteristic of cell phones in many Third World countries is that they are not as traceable as in industrialized nations. This is because cell phones are sold, for the most part, on a pay-as-you-go basis and are not necessarily linked to a specific address or credit card number. These characteristics are useful for activism (Zuckerman, 2007). Yet another useful trait of some phones is taking pictures, both stills and moving. The struggle in Oaxaca is perhaps one of the most photographed and filmed uprisings ever. The large amount of circulating images on the Internet is in part thanks to citizens armed with cell phones as much as to activists video recording or journalists taking pictures or filming. In actuality many of the images uploaded on the Internet during the first months of the struggle came from local people using cell phone cameras. People who owned cell

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phones with picture capability were recording marches, police brutality, and speeches. In a way, regular citizens became photojournalists providing their country and the world at large with important images about the struggle of thousands of teachers and their supporters. However, using cell phones in a long-lasting struggle, like the Oaxaca case, is costly. To offset costs and appeal to the strong sense of community in Oaxaca, the APPO set up a table where people could donate money for the purchase of phone cards at the entrance of COR-TV. During some public activities where hundreds of people attended, APPO members would walk around collecting donations to continue the use of cell phones, which was their main form of communicating and organizing. Donations were also used to support the general cause and help teachers who needed assistance. After twenty-one days, the government managed to block the transmission towers. The movement could no longer air its shows. The police forced the people out of COR-TV, and overall repression increased. A year later the governor remained in power. The movement has continued its struggle against the local government and organizes marches, closes down streets, temporarily holds some public buildings, and works to get fellow activists and common citizens out of jail.

Conclusion There is no doubt that Telefónica has been and may remain the leading telecommunications corporation in Latin America. This corporation has brought about significant change in the way Latin Americans communicate and access information by virtue of expanding fixed lines, providing wireless technology, and tending fiber optics to access the Internet. In Peru, however, the development of the Internet has been less linked to Telefónica or government efforts to close the digital divide than the RCP and a multitude of small entrepreneurs. The RCP led the charge in developing, adopting, and shaping Internet technology and creating sites for public access. Later, small entrepreneurs and common citizens seeking to improve their meager economic situation contributed to the egalitarian growth of the Internet in Peru by opening small Internet shops. The development of Internet shops has largely been a response to an economic crisis that hit the middle and lower classes, who saw opening Internet shops as a way to earn a living. Public access at a low cost has universalized the use of the Internet, making the Peruvian population one of the most connected in the southern hemisphere. However, this does not mean that the Internet has first and foremost been used for personal or collective development. For the most part, its use in

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the cabinas has primarily been for e-mailing and chats and secondly to gather information or complete educational tasks. The connectivity and access to information that people have attained since the arrival of the Internet has created new forms of socializing both locally and internationally. For the poor, the Internet has become a communications tool to connect with family or friends living away, and Internet shops have become places, especially for youths, where they can learn about the world without turning to expensive books that they cannot afford. They can also entertain themselves cheaply and have a place to meet and hang out with friends, both virtually and in actuality. Although it is hard to say how much the Internet has benefited Peru economically, there is no doubt that in the realm of tourism it has had a significant impact. Almost all facilities working within this industry have access to the Internet. Almost all hotels, hostels, and travel agencies advertise on the Internet and conduct business through it. The industry has quickly developed in the past ten years, and one of the reasons, some people suggest, was its use of the Internet. Cuzco as a city and tourist destination has been exposed to the world via the web, attracting thousands of tourists each year. The Internet takes on a different meaning for low-income youth who have hoped to migrate by meeting foreign tourists. For them, this technology has provided a wealth of knowledge about different parts of the world that they capitalize on through befriending travelers. New technologies have been sold to young people as artifacts of great importance to achieve modernity and to be part of the new globalized world. The young have felt a need to access the Internet and to have cell phones in order to be connected. In fact, the emphasis on the need for connectivity to the rest of the world has caused some young people to be uncritical of the structures providing these services. The politics and economics behind access to new technologies have seemed mostly irrelevant to them. However, when social upheavals have occurred these technologies have taken on crucial roles. In some cases, the new technologies have become tools for organizing people who are against the very forces of neo-liberalism that support the current telecommunications industry and other global corporations that have invaded Latin America.

Notes 1. www.yachay.com.pe, last accessed June 12, 2007. The RCP site provides detailed information about the Internet, cabinas, and their development in Peru. 2. Jesús Guillén is the general manager for Fondo de Inversión en Telecomunicaciones (FITEL [Fund for Investment in Telecommunications]). Mr Guillén granted me an interview in Lima (September 2006).

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3. Liliana Guerra, “Un negocio a la Peruana,” La República, August 28, 2006, www .bibliosperu.com/willana, last accessed June 10, 2007. 4. www.internet.com.pe, last accessed June 10, 2007. This is the website of a small company that installs cabinas. 5. John Paucar, “Las cabinas de Internet dejaron de ser un negocio muy rentable,” OSIPTEL, May 3, 2004. 6. www.yachay.com.pe, last accessed June 10, 2007. Article posted by Nidia Cerna de la Torre. The article is based on a study conducted in Lima in 2001. 7. The term brichero(a) was coined locally in the 1980s. The brichero is sort of a gigolo, and his ultimate goal is to migrate. There is a short novel Cazador de Gringas (1994) by Mario Guevara Paredes that illustrates this social and economic phenomenon in Cuzco. There are several websites and blogs addressing this topic. 8. Daniela Estrada, “Warning-Used Cell Phones,” September 2, 2006, www .ipsnews.net, last accessed June 5, 2007. 9. Benjamin Pimentel, “Cell phone craze may be key to Philippines’ future: nation a hotbed of ‘texting,’” Chronicle, February 11, 2001. Retrieved on June 6, 2007 from www.sfgate.com. 10. Ethan Zuckerman, “Mobile phones and social activism: Why cell phones may be the most important technical innovation of the decade,” Techsoup, June 20, 2007. 11. Popular Assembly of the Peoples of Oaxaca (APPO). 12. Cell phone service and coverage in Mexico, www.cellularabroad.com/mexico, last accessed June 11, 2007. 13. More on this and several other topics and claims by the people of Oaxaca were declared during the reading of the Declaración de Oaxaca [The Oaxaca Declaration]. A manifesto written by the APPO, and publicly read in the main zocalo on August 9, 2006.

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News Sources and Trade Journals Consulted All of these were obtained through Lexis-Nexus Academic (in alphabetical order) AFX News Brazil Financial Wire Business Law Europe Business Spain Business Wires Cable & Satellite Europe Cable & Satellite Express Cable Europa Canadian Corporate News Wires CNN De Telegraaf Dow Jones EFE News Service El País El Mundo

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Index

acción de oro, 8, 11, 54–55 Admira, 80 Adquira, 12, 59, 75–76; operations of, 76 ADR. See American Depository Receipts AECI. See Agencia Española de Cooperación Internacional Agencia Española de Cooperación Internacional (AECI), 109 Alcalá-Zamora, Niceto, 26 Alcatel, 7 Aldaña, Mercedes Rojas, 126 Alfonsin, Raúl, 68 Alfonso XIII, King, 7, 15, 17, 18, 19, 22–23, 24, 25; fall of, 26 Alierta, Cesar, 79 Allende, Salvador, 49, 69 Alvarado, Juan Velasco, 1, 72 American Depository Receipts (ADR), 63 Anna, Timothy, 16 Antena 3 TV, 45, 80, 82–84 APPO. See Asamblea Popular de los Pueblos de Oaxaca Argentina: costs of production in, 90; dirty war in, 48; economic collapse (2001), 69; film production in, 91;

labor conflicts, 70; Telefónica’s entrance into, 68–69 Argos Communications, 92 Arte y Tecnología, 106, 109–11 Asamblea Popular de los Pueblos de Oaxaca (APPO), 125, 126 Asociación Peruana de Empresas Servicio del Internet (ASPESI), 119 ASPESI. See Asociación Peruana de Empresas Servicio del Internet Atento, 12, 59, 76, 101 AT&T, 21, 62; business practices of, 22 automated telephone center, 22–23 Azaña, Manuel, 28, 29–30 Aznar, José María, 54 Azul Televisión, 89–90 Banco Bilbao Vizcaya Argentaria (BBVA), 3, 60, 75 Banco Santander Central Hispano (BSCH), 82 Banesto, 82 Bazal, 84 BBVA. See Banco Bilbao Vizcaya Argentaria BCC. See Bond Corporation Chile

— 145 —

146

Behn, Sosthenes, 19–20, 21, 24, 25, 26, 27, 28, 31, 32, 69; anti-socialist sentiments of, 30 Behn brothers, 18, 19, 23 Belgacom, 53 Belle Epoque, 93 Bell South, 64 Bermúdez, Francisco Morales, 1 Bertelsmann, 12, 14, 75, 84, 85 Blumenfeld, Remy, 85 Bond Corporation Chile (BCC), 69 Bossi, Pablo, 91 Bowers, Claude, 30 BRACAN-1, 35 Brazil: economy of, 71; labor problems in, 72; telecommunications joint ventures in, 72; telecommunications privatized in, 72; Telefónica’s entrance into, 71–72; wireless communications in, 71–72 bricheros, 122, 130n7 Brighter Pictures, 85 British Telecom, 53 Broadcast Communications, 84–85 Brooker, Charlie, 86 BSCH. See Banco Santander Central Hispano Burgess, Thomas, 37 cabina pública, 14, 117; growth in, 117–18; installation cost of, 119; as meeting place, 120; promotion of, 118; renting time in, 121; as solution to economic problems, 117 Cable Mágico, 81, 83, 88–89; growth of, 89; package cost, 89; target audience of, 88 Cablevision, 81–82 La Caixa, 60 Canal Plus, 81 Cárdenas, Ignacia, 24 Carlos de Borbón, Juan, 10, 40, 41; modernizations by, 39 Casas, Isidro Fainé, 60 Castle, William, 28

Index

Caudell, Ben, 86 cellular telephony, 14, 124–25; adoption of, 125; cost of, 128; features of, 127; participatory journalism and, 127–28; social mobilizations and, 124, 127 Center for Economic and Policy Research, 47 Centro de Profesionales de Empresas de Telecommunications (Ce.P.E.Tel), 69 Ce.P.E.Tel. See Centro de Profesionales de Empresas de Telecommunications Chase Manhattan Bank, 63 child labor, 106, 108–9 Chile, 49; cable services in, 81; coup in, 69; Telefónica’s entrance into, 69–71 Cisneros, 93 Citibank, 63 Columbus Day, 10–11, 24; protests, 11 Companhia Telefónica Borda do Campo (CTBC), 72 Compañia de Teléfonos de Chile (CTC), 58, 69; nationalization of, 69 Compañia Peninsular, 7, 19 Compañia Peruana de Teléfonos (CPT), 73 Compañia Telefónica Nacional de España, 7, 11, 19, 57, 58, 69; binding joint examination of, 28; board members of, 19–20; collective bargaining agreement of, 29; company records, 25; concession of, 29; controversy over, 25–26; growth of, 22–23, 34; headquarters of, 23–24; infrastructure of, damaged, 31; nationalization of, 31–32, 33; sale of, 32; stability of, 35; value of, 23; vertical integration adopted by, 20–22 Corporación Oaxaqueña de Radio y Televisión (COR-TV), 125, 126–28 COR-TV. See Corporación Oaxaqueña de Radio y Televisión CPT. See Compañia Peruana de Teléfonos CTBC. See Companhia Telefónica Borda do Campo CTC. See Compañia de Teléfonos de Chile

Index

CTNE. See Compañia Telefónica Nacional de España Cuba, 16 Cuban Telephone Company, 18 Daum Communications, 75 decentralization, 41 democracies, transition from dictatorships to, 3, 9 Deutsche Telecom, 53 DGPE. See Dirección General del Patrimonio del Estado dictatorships, 1–2; repression generated from, 3; transition to democracies from, 3, 9 Dirección General del Patrimonio del Estado (DGPE), 32, 33 Disney, 12, 14, 58, 59, 91, 92, 93, 94 ECHO-II satellite, 35 economic liberalization, 40 ECSC. See European Coal and Steel Community EducaRed, 106, 107–8; objectives of, 107; teachers’ unions and, 107 EEC. See European Economic Community Ejército Zapatista de Liberación Nacional (EZLN), 123–24 El Salvador, 48 Emergia, 59, 118 Empresa Nacional de Telecomunicaciones del Perú (ENTEL-Perú), 73 Endemol, 12–13, 84–88; clients of, 85; media synergy of, 85; television programs of, 85, 86, 87; trading agreements of, 87 Endesa, 3 ENTEL-Perú. See Empresa Nacional de Telecomunicaciones del Perú Ericsson, 18, 19, 21, 22 Estrada, Joseph, 124 EU. See European Union EURATOM. See European Atomic Energy Community

147

European Atomic Energy Community (EURATOM), 38 European Coal and Steel Community (ECSC), 38 European Community. See European Union European Economic Community (EEC), 38 European Regulatory Commission, 81, 82 European Union (EU), 2, 5; demands of, 6; deregulation in, 52–55; institutional pathways for, 38; membership conditions of, 39; political stability encouraged by, 39; Spain’s entry into, 38–39 EZLN. See Ejército Zapatista de Liberación Nacional film, 91–94 Financial Times Expansion, 70 Forum, 106 foundations, 104 France Telecom, 53, 64, 68 Franco, Francisco, 1, 30–35; cabinet reorganization by, 34; death of, 1, 2, 3, 10, 32, 35, 39 Frente Popular, 29–30 Fujimori, Alberto, 73 Fundación Telefónica, 100; causes supported by, 105; cultural role of, 104–5, 110; focus of, primary, 106; funding for, 105, 106; institutional objectives of, 105; preserving history/culture in Peru, 111; programs of, 106–11; role in public life, 112; social role of, 104–5 La Gaceta Internacional, 27 Galarrage, Gregorio Villalebeitia, 60 General de Teléfonos, 7, 19 globalization, 2, 22, 123; conflicts and, 99; failed promises of, 14; responses to, 98; social inequalities and, 99

148

Index

GMG. See Guardian Media Group Gomery, Douglas, 20 Gómez, Andrés Vicente, 93 González, Felipe, 40, 41–43, 52, 80; dissatisfaction with, 54; election of, 41 Great Depression, 24–25, 26 Green Book for Telecommunications, 45, 54 Green Paper on Corporate Social Responsibility, 99 Grupo Recoletos, 82 Grupo Telefónica, 8 Grupo Zeta, 80, 82 Guardian Media Group (GMG), 84; expansion of, 84–85 Guatemala, 48 Guerra, Liliana, 117 Hawkshead, 84 Hay, Gavin, 85 hermandad, 50 Holmes, Peter, 86 Honduras, 48 hostile purchasing, 8 Iberdrola, 3 Iberia, 75 ICI. See Instituto de Cooperación Iberoamericano la igualdad y la unión territorial dentro del imperio, 16 ILO. See International Labor Organization IMF. See International Monetary Fund import substitution industrialization (ISI), 8, 47–48, 98 Infovia, 118 INI. See Instituto Nacional de Industria Instituto de Cooperación Iberoamericano (ICI), 42 Instituto de Cultura Hispanoamericano, 42 Instituto Nacional de Industria (INI), 33 INTELSAT. See International Satellites Consortium

international calling, 22, 34 International Labor Organization (ILO), 98, 103, 105 International Monetary Fund (IMF), 3, 9 International Satellites Consortium (INTELSAT), 35 International Standard Electric (ISE), 21, 32, 34; development of, 22 International Telecommunications Union (ITU), 44 International Telephone and Telegraph Corporation (ITT), 7, 18–22, 23, 24, 25, 30, 31–32, 33, 35, 51–52; business practices of, 22; management system, 20; revoke license of, attempt to, 26–27, 28, 29 International Western Electric Corporation (IWEC), 21 Internet, 14, 116–23; children and, 123; for entertainment, 120; functions of, 119–20; influence of, 122; in Latin America, 116; neutrality of, 116; in Peru, 115, 117, 120–23, 129; structure of, 116; tourism and, 121 Internet service providers (ISPs), 116 ISE. See International Standard Electric; Standard Eléctrica Española ISI. See import substitution industrialization ISPs. See Internet service providers ITT. See International Telephone and Telegraph Corporation ITU. See International Telecommunications Union IWEC. See International Western Electric Corporation Izuel, Cesar Alierta, 60 labor stability, 101 Lagos, Ricardo, 70 Latin America: debt, 46; Internet in, 116; lost decade, 46–50; marketplace, 8–10, 50–52, 99; political climate of, 48–49; privatization in, 67;

Index

social/economic/geographical divisions in, 51; Spain and, relationship between, 49–50, 66; Telefónica’s arrival into, 52, 66–74; telephone service in, demand for, 52; television in, 47 Lerner, Diego, 92 Ley 42/1995, 22 de diciembre, De Telecomunicaciones por cable, 45 Ley de Ordenación de las Telecomunicaciones (LOT), 43–45 Lola Films, 91, 93–94 lo que nos une, 15–16 LOT. See Ley de Ordenación de las Telecomunicaciones Lycos, 12, 74, 77 Maastricht Treaty, 54 madre patria, 50 Madrileña de Teléfonos, 7, 19 La Marcha de las Cacerolas, 126 MAT-1, 35 Le Matériel Téléphonique, 21 Mediapark, 94 Mediaset, 81 Menem, Carlos Saul, 68, 89, 90 Metrópolis, 81 Mexican Reforma group, 74 Microsoft, 14, 107 Miranda, Torcuato Fernández, 39; appointment of, 40 Miravista, 92–93 Mol, John de, 84 Molina, Antonio, 41 monopoly, telephony, 6, 7, 11, 16, 20; de facto unrestricted, 17; dissolving, 54; lift of, 8 monopoly, television, 80 Movistar, 59, 68, 106, 125 El Mundo, 70 Munhoz, Almir, 72 Navarro, Carlos Arias, 40 Navarro-Reverter, José, 32 Negocios, 26

149

neo-liberalism, 9, 10 Nextel, 64 Nutec, 74 OIM. See Organización Internacional para las Migraciones Organismo Supervisor de Inversión Privada en Telecommunicaciones (OSIPTEL), 67, 78n9, 118 Organización Internacional para las Migraciones (OIM), 105 Ortiz, Ulises Ruíz, 126 OSIPTEL. See Organismo Supervisor de Inversión Privada en Telecommunicaciones El País, 70; campaign against Telefónica, 83 Partido Popular (PP), 54 Partido Socialista Obrero Español (PSOE), 40 Patagonik Film, 91–92 Pearson, 12, 14, 82, 94 Pencan-1, 34 Perón, Juan, 68 Peru, 48; cable services in, 81, 89; Fundación Telefónica preserving culture/history in, 111; Internet culture in, 115, 117, 120–23, 129; Telefónica’s entrance into, 72–74; tourism in, 120 philanthropy, 104 phone cards, 103 Pinochet, Augusto, 1, 69; economic changes implemented by, 49 Planeta, 84 plantones, 125 de Polanco, Jesús, 82 Portugal Telecom, 71 poverty, 109 PP. See Partido Popular Prieto, Indalecio, 28–29 Primo de Rivera, Miguel, 7, 18, 19, 22, 23, 26, 27, 35; corruption of, 24; critics of, 24; death of, 25; political

150

Index

interests of, 24; popularity of, 24; resignation of, 25 Prisa Group, 81, 82–83 privatization, 9; in Latin America, 67; of telecommunications in Brazil, 72; of Telefónica, 11–12, 44, 45, 52–55, 77 Proniño, 106, 108–9 Protection of National Industry, Law of, 33 PSOE. See Partido Socialista Obrero Español PTT, 62 Radio and Television Law, 90 Radio Cacerola, 126 Radio Continental, 90 Radio Onda Cero, 45 Radio Television Luxembourg (RTL), 85 Radio y Televisión de España (RTVE), 80, 82 Rajoy, Mariano, 84 RCP. See Red Cientifica Peruana Red Cientifica Peruana (RCP), 117, 118 Renvir, 82 Repsol-YPF, 3, 69, 75 el rey padre, 15 Rock, Logan, 27 RTL. See Radio Television Luxembourg RTVE. See Radio y Televisión de España de la Rua, Fernando, 90 Sanjurjo, José, 27 S.C.L.V. See Servicio de Compensación de Valores SEC. See Securities Exchange Commission Securities Exchange Commission (SEC), 60 Servicio de Compensación de Valores (S.C.L.V.), 60, 63 Siemens, 18, 19, 21, 22 Sintel, 8, 44, 72 Sobel, Robert, 19, 21

soccer, televised, 34 social responsibility, corporate, 111; applied, 100–103; EU Commission on, 98; profit making and, 102; Telefónica and, 13, 97, 100, 101, 112; value of, 99; WBCSD on, 98 social strife, 14 Sogecable, 81, 84 Sotelo, Leopoldo Calvo, 41 Spain: agriculture economy of, 39; coup in, attempted, 27; entry into EU, 38–39; international denouncement of, 28; international isolation of, 39; Latin America and, relationship between, 49–50, 66–67; modernity demonstration of, 34; preferential trade agreement for, 39; protectionist measures dismantled in, 42; recession in (1990s), 54; reinserted into Western European sphere, 34; social mobility in, lack of, 18 Spanish Canal Satellite Digital, 82, 83 Spanish civil war (1936-1939), 29–31; end of, 31; phone lines destroyed during, 31 Standard Eléctrica Española (ISE), 7 Standard Telephones and Cables, Ltd., 21 Startel, 68 Stimson, Henry, 26, 28 Suárez, Adolpho, 40, 41 Suárez, Gonzalo, 93 TAT-5, 35 Telcel, 125 Tele 5, 80 TELEBRAS, 71 Tele Centro Sul, 72 Telecom Argentina, 68 Telecom Italia, 63, 68, 88 Telefe, 89–90 Telefe International, 90 Telefónica, 2, 3, 4; activity lines, 61, 62; alliances of, 62; anti-trust

Index

infringement of, 83; Argentina, entrance into, 68–69; assets of, core, 63; background, 6–8; board of directors, 60–61; branding, 58–60, 80; Brazil, entrance into, 71–72; as broker of cultural production, 88; bylaws of, 58, 60; Chile, entrance into, 69–71; corporate management team, 61; corporate structure of, 60–63; domestic telecommunications operation of, 5; economic growth of, 65; education opportunities provided by, 102; employees of, number of, 62; exclusivity periods granted to, 65; expansion of, 5, 45, 64; expansion of, business model of, 115; film and, 91–94; golden age for, 77; growth of, 6; headquarters, 12, 58; holdings of, 12; influence of, 79; interests of, 5, 44; investments of, 5, 11; Latin America, arrival of, 52, 66–74; leadership, concept of, 59; literature on, 4; management body, 61; market penetration of, 64; media distribution of, 12; media ownership of, 79; new customers of, 87; objectives of, 58; overview of, 5–6; ownership of, 60–63; El País campaign against, 83; Peru, entrance into, 72–74; price of services, 67; privatization of, 11–12, 44, 45, 52–55, 77; proximity, concept of, 59; renewable contractual agreements, 67; restructuring of, 11–12; revenues of, 65–66; shares of, 44, 63; social responsibility and, 13, 97, 100, 101, 112; state and, contractual agreement between, 44; as strategic sector firm, 43; structure of, 12; subsidiaries of, 62; television and, 80–90; trade unions and, tension between, 101; training seminars, 102; value of, 44, 58; voluntary

151

redundancy plan, 72; women working at, 101–2; world presence of, 62 Telefónica Chile, 58; bylaws of, 70; education system and, 71; employees of, number of, 70; strike against, 70 Telefónica Contenidos, 80 Telefónica de Argentina, 57 Telefónica de España S. A., 57 Telefónica del Peru, 58, 73 Telefónica Foundation, 13 Telefónica Media, 80 Telefónica Publishing International (TPI), 75 Telefónica S. A., 57 Telefónica Sao Paulo, 71 Telefuturo, 81 telegraph, 17 Telesp, 71 Tele Sudeste Celular, 71 Televisa, 92 television: in Latin America, 47; opening market to private, 80; programs of Endemol, 85, 86, 87; protectionist laws and, 47; reality shows, 84; regulation of, 45; Telefónica and, 80–90 Televisión Española (TVE), 34 Televisión Federal. See Telefe Television Without Frontiers Directive, 80, 81 Telia, 62 Telintar, 68 Telmex Cable, 89, 125 Terra Networks, 12, 59, 68, 74–75, 77, 106 TIM, 64, 72 Toledo, Alejandro, 73 tourism: Internet and, 121; in Peru, 120 TPI. See Telefónica Publishing International transnationalism, corporate, 22 Treaty of Paris, 38 Treaty of Rome, 38–39

152

Index

Trueba, Fernando, 93 TVE. See Televisión Española UCD. See Unión de Centro Democratico UNCTC. See United Nations Center on Transnational Corporations UNCTD. See United Nations Conference on Trade and Development Unión de Centro Democratico (UCD), 40–41 Unión Fenosa, 3 Unired, 118 Unisource, 62 United Nations Center on Transnational Corporations (UNCTC), 98 United Nations Conference on Trade and Development (UNCTD), 98 Velázquez-Gaztelu, Cándido, 66, 77 Venevision, 93 vertical integration, 20–22 Victoria Real, 86, 87

Villalonga, Juan, 63, 66, 77, 79–80, 85 Voice over Internet Protocol (VoIP), 120 VoIP. See Voice over Internet Protocol Voluntario Telefónica, 103, 106 WBCSD. See World Business Council for Sustainable Development web comics, 87 Wiley, John, 27 women workers, 36n1; at Telefónica, 101–2 World Bank, 3, 9, 50 World Business Council for Sustainable Development (WBCSD), 98 World Day Against Child Labor, 109 World-Partners, 62 World War II, 31, 38 Zeppotron, 86, 87 Zeta Group. See Grupo Zeta zona nacional, 31