Telefonica S.A.

Over 2021, Telefonica announced or closed several fiber deals, which we believe do not materially affect the group's adjusted credit metrics or credit profile. Although the transactions have moved capex programs off-book, which is beneficial for Telefonica's cash flow generation and credit metrics, we do not believe the deconsolidation is temporary because Telefonica has a no call option and we understand it does not intend to consolidate the assets after the fiber buildout phase. We therefore view deconsolidation as an accurate reflection of the underlying economic reality. What's more, we have assessed that the strategic importance of these assets is somewhat limited for the group because fiber rollout is at an early stage, the market is not key for Telefonica,

...Telefonica's underlying performance started to strengthen in 2021 as organic revenue and operating income before depreciation and amortization (OIBDA) growth turned positive. Over 2021, Telefonica reported 2.0% organic revenue growth, compared with a 3.3% decline in 2020. For full-year 2022, we forecast 1.0%-2.0% organic revenue growth--in line with management guidance--excluding our pro rata adjustments for minorities at Telefonica Brazil and Telefonica Germany, but including our pro rata consolidation of the JV with Virgin Media, VMED O2, in the U.K. We expect the turnaround will continue thereafter, supported by higher consumer service revenues because Telefonica benefits from investments in network quality and customer experience. It is also developing digital services ecosystems in Spain and Latin America, and the growing contribution from Telefonica Tech supports the group's business-to-business (B2B) offering. Organic OIBDA grew by 1.4% over 2021, versus the 5.7% decline in 2020,...

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