​I have no idea what the world record for layoff costs actually is, but Telefonica’s bill of 2.7 billion euro (yes, that’s US$3.8 billion) for 6,500 positions – averaging 415,000 euro per employee – must come pretty close. The Spanish unemployment rate is above 20% (close to 45% for people under 25 – which as such can’t be a big wonder if hiring and firing is that risky) and labor relations thus understandably tense, but even still that’s an extraordinary sum. To think about it, it's also rather extraordinary that atelecoms operator really has enough fat to shed almost one-fifth of its staff, in a market as developed as Spain and in the year2011.

I brought this up, because it reminded me of another factor that is often overlooked when analyzing telecoms operators’ growth outlook: demographics. Telefonica’s domestic market was a remarkably comfortable place to operate for most of the last decade, thanks to a combination of a booming economy (i.e. a housing bubble) and an exceptionally high level of immigration. Spain’s population grew by about 12%, or 4.5 million people, between 2000 and 2008. Equally importantly, those were also years when the country’s job market could accommodate the newcomers very smoothly.

For Telefonica, which even as of today holds a market shares of over 40% in the mobile sector and over 50% in the fixed broadband sector, that meant a huge windfall. Its domestic market saturated at a slower pace than those of other European incumbent telcos, and as a result it was able to maintain retail prices that were higher than the dynamics of its competition would have probably otherwise allowed. Once the Spanish economy in the end of the decade started to crumble, those prices have had then more scope to come down than in many other countries. And similarly, Telefonica have had more scope to downsize its organization.​