According to Financial Times News, Telefónica will slash its dividend by 50% to just €0.15 per share next year under new CEO Marc Murtra. The Spanish telecom giant’s shares plummeted over 9% following Tuesday’s announcement of this dramatic payout reduction. The company plans to redirect the savings toward upgrading equipment, building converged mobile-broadband networks, and developing new business products. Murtra, appointed this year by shareholders including the Spanish government, is sharpening focus on just three European markets—Spain, the UK, and Germany—plus Brazil after selling off other Latin American operations. The company’s free cash flow guidance for 2026 has been cut from €3 billion to just €1.9-€2 billion, making the dividend cut necessary given high leverage.
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The European telco reckoning
Here’s the thing: Telefónica isn’t alone in this struggle. The company explicitly called out how European operators have fallen “far behind” the US and China in tech innovation. They’re basically admitting that Europe’s fragmented market structure—with too many small players—has led to “inefficient” investment. When you’ve got four or five operators in every market, nobody achieves the scale needed to compete with American or Chinese giants.
And that’s why Telefónica, along with other European telcos, is pushing Brussels hard for market consolidation. They want regulators to allow markets to shrink from four players to three, following the UK’s approval of the Vodafone-Three merger last December. But here’s the catch: will regulators play along? European competition authorities have historically been pretty skeptical about reducing consumer choice.
The shareholder pain tradeoff
Analyst James Ratzer from New Street called the outcome “disappointing,” and you can see why. Cutting your dividend in half is basically telling income investors to look elsewhere. Telefónica’s stock reaction—that 9% plunge—shows how much the market hates dividend cuts, even when they’re framed as necessary for future growth.
But honestly, what choice did they have? When your free cash flow projection gets slashed by a third, something’s gotta give. The company was already highly leveraged, so they couldn’t just borrow more to maintain the dividend. This feels like one of those “short-term pain for long-term gain” situations, but shareholders are clearly feeling the pain part right now.
The consolidation waiting game
What’s really interesting is what Telefónica didn’t announce: any actual acquisitions. Murtra has signaled he wants to make deals, but the plan unveiled this week is all about getting their own house in order first. The company says they’ll be “fully prepared to seize any [consolidation opportunities] that may arise.”
So they’re basically putting themselves in position to be a consolidator rather than a target. With their focus narrowed to just four key markets and cash being redirected to infrastructure, they’re building a stronger foundation. But the big question remains: when will European regulators finally give telcos the green light to merge their way to competitive scale? Because without that, all this investment might just be rearranging deck chairs on a ship that’s still losing the global race.
