Telefónica’s €2.5bn restructuring reshapes its cost base

Telefónica has put concrete numbers on one of the most far-reaching workforce adjustments in its recent history. The Spanish telecoms group has confirmed that its latest collective redundancy plan will cost around €2.5 billion, while generating average annual savings of roughly €600 million from 2028 onwards. The figures were disclosed to the market shortly before year-end and reported by finanzas.com, prompting an immediate — though contained — reaction from investors.

Shares in Telefónica slipped by about 1% on the IBEX 35, reflecting the market’s instinctive focus on short-term costs rather than long-term efficiencies. Yet behind the headline numbers lies a broader effort to recalibrate the company’s cost base, cash generation and operating model at a time when Europe’s telecoms sector faces mounting structural pressure.

A workforce adjustment designed to be structural

Telefónica estimates that the total provision associated with the ERE (expediente de regulación de empleo) will reach approximately €2.5 billion before taxes. The adjustment affects seven group companies in Spain and is expected to result in around 5,500 employee exits, although the final number will depend on voluntary participation.

Most of the cost will be absorbed by the group’s core domestic operations. Telefónica Spain and Movistar Plus+ account for about €2.3 billion of the total, while the remaining €200 million corresponds to corporate units such as Telefónica SA, Global Solutions and Digital Innovation.

By clearly quantifying the cost and confirming that it will be booked in its 2025 accounts, Telefónica signals an intention to confront the impact upfront rather than spreading it over several years. The strategy is one of financial reset, clearing legacy costs early in the cycle.

Savings that reshape the medium-term outlook

The financial rationale of the ERE rests on its long-term impact. Telefónica expects average annual direct cost savings close to €600 million from 2028, a figure that significantly alters the group’s expense structure.

Of that total:

• Around €500 million per year will come from Telefónica Spain and Movistar Plus+.

• Roughly €60 million per year will be generated by corporate units.

More importantly for analysts and investors, the company anticipates that cash flow will turn positive as early as 2026, once employee departures begin, which are scheduled to start in the first quarter of that year.

Compared with Telefónica’s previous ERE, completed in January 2024, the contrast is notable. That earlier process cost €1.3 billion and delivered annual savings of around €285 million. The new adjustment more than doubles the expected savings, underlining its role as a cornerstone of Telefónica’s cost transformation rather than a tactical fine-tuning.

A rising cost per employee exit

One of the most closely watched indicators is the average cost per employee, which Telefónica estimates at nearly €455,000 if the expected number of exits is reached. This represents an increase of around 20% compared with the previous ERE, when the average stood at approximately €380,000 per worker.

The higher figure reflects the profile of the workforce affected — employees with long tenure and higher salaries — as well as Telefónica’s emphasis on voluntary departures and early retirement schemes. The company has set a minimum of 4,525 exits, while the maximum will depend on how many workers opt in.

Beyond a certain threshold of voluntary participation, Telefónica has committed to avoiding compulsory redundancies, a condition that proved decisive in reaching an agreement with unions.

Market reaction and investor expectations

The immediate market response was cautious rather than dramatic. Telefónica’s shares fell around 1%, broadly in line with a session of moderate declines for the Spanish benchmark index. The reaction illustrates how equity markets often respond to restructuring announcements: the upfront cost dominates sentiment, while the benefits remain discounted until they begin to materialise.

For long-term shareholders, the adjustment reinforces the idea of Telefónica as a company prioritising balance-sheet discipline and predictable cash generation over short-term earnings optics. The restructuring cost weighs on near-term results, but it also reduces uncertainty about future expenses.

The broader strategy behind the ERE

The workforce adjustment is embedded within Telefónica’s Transform & Grow strategic plan, presented in early November. According to Invertia, this roadmap targets around €3 billion in total cost savings by 2030, with €2.3 billion expected by 2028.

Within that envelope, around €1.2 billion of the savings projected for 2030 are directly linked to the ERE, highlighting its central role in the group’s transformation. Telefónica frames the plan as a shift toward a company that is more digital, more flexible and structurally prepared for future challenges.

This repositioning comes as telecom operators across Europe grapple with rising investment needs, intense competition, regulatory pressure and slower revenue growth.

A long-term social framework

The ERE has been accompanied by a broader set of labour agreements designed to provide stability through the end of the decade. Telefónica reached an agreement with the unions represented across its Spanish operations — UGT, CCOO and Sumados-Fetico — not only on the redundancy plan, but also on the extension of key collective agreements.

These agreements have been extended until December 31, 2030, aligning labour conditions with the timeframe of Telefónica’s strategic plan. In parallel, a new collective agreement for Movistar Plus+ has been signed, covering the group’s audiovisual business over the same period.

For Telefónica, this alignment reduces execution risk by ensuring industrial peace during a phase of deep operational change.

Voluntary exits and workforce renewal

Although the scale of the adjustment is significant, Telefónica has consistently framed the process as a managed transition rather than a blunt downsizing exercise. In the companies covered by the Convenio de Empresas Vinculadas, the group will accept up to 5,139 early retirement requests, while committing to avoid forced exits once a minimum level of participation is reached.

At the same time, Telefónica argues that the ERE will allow it to reallocate resources toward critical skills, particularly in digital, technological and data-related roles. The goal is not only to reduce headcount, but to reshape the workforce in line with a more flexible and digital operating model.

Leadership vision and the European context

The restructuring also reflects Telefónica’s broader view of the European telecoms market. Executive chairman Marc Murtra has argued that greater consolidation across Europe would enable large-scale investment in infrastructure and strengthen digital sovereignty.

From this perspective, the ERE is part of a wider effort to increase financial flexibility and operational simplicity, positioning Telefónica to compete in a sector where scale and efficiency are becoming increasingly decisive.

Recent adjustments to the company’s leadership structure, including the expansion of CEO Emilio Gayo’s responsibilities, are intended to support this shift toward a leaner and more agile organisation.

A reset with long-term consequences

Telefónica’s €2.5 billion workforce adjustment marks a clear inflection point. The cost is material, the social impact is substantial, and the short-term market reaction has been cautious. Yet the strategic intent is consistent: lock in structural savings, stabilise cash flow and simplify operations.

Whether this reset delivers the expected benefits will become evident over the coming years, as savings begin to accrue and Telefónica tests whether a leaner structure can sustain competitiveness in a rapidly evolving European telecoms landscape.

Frequently Asked Questions

What is an ERE and why is Telefónica using it?

An ERE is a regulated collective redundancy process in Spain. Telefónica is using it to reduce structural costs and align its workforce with its long-term strategy.

How much will Telefónica’s ERE cost the company?

Telefónica estimates the cost at around €2.5 billion before taxes, according to information reported by finanzas.com and disclosed to the CNMV.

When will Telefónica start benefiting financially from the ERE?

The company expects a positive impact on cash generation from 2026, with full annual savings of about €600 million from 2028.

How many employees are expected to leave Telefónica?

Telefónica anticipates around 5,500 exits, with a minimum of 4,525 depending on voluntary participation.

Why did Telefónica’s shares fall after the announcement?

Markets tend to react negatively to large upfront restructuring costs, even when they are expected to generate long-term savings, leading to short-term share price pressure.