Telefónica is pulling out of most of Latin America in a sweeping retreat that marks the end of an era for the Spanish telecommunications giant, which once dominated the region's market through its Movistar brand and saw it as a crucial engine for growth.

The company has initiated insolvency proceedings in Peru, where it faces a $330mn tax liability stemming from a dispute dating back to 2000-2001. The bulk of this sum – about 80 per cent – comprises fines and interest, highlighting the regulatory challenges that have plagued the group's regional operations.

In parallel moves, Telefónica has enlisted JP Morgan to oversee the sale of its Mexican business, which serves 24mn subscribers. The group had already shifted to operating as an independent carrier using AT&T's infrastructure through a wholesale agreement in 2019, signalling early steps in its strategic withdrawal.

The company is also in talks with five potential buyers, including Carlos Slim's América Móvil, for its Argentine operations, where it commands a 28 per cent mobile market share. Industry analysts value the Argentine business at about €1bn, though currency volatility could affect the final valuation.

In Colombia, where Telefónica holds 22 per cent of mobile lines, the group is pursuing a $400mn merger with Millicom's Tigo brand. The deal would reshape the competitive landscape in one of the region's key markets.

These moves align with Telefónica's 2019 strategy to concentrate on four core markets: Spain, Brazil, Germany and the UK. The restructuring comes as the group grapples with currency depreciation, which has squeezed profitability as it maintains debt in euros and dollars while earning revenue in local currencies.

The company has faced mounting challenges in several markets. In Peru, it has not turned a profit since 2017, while confronting increasing regulatory and fiscal pressures. Intensifying competition from both traditional operators and new digital entrants has further eroded margins across the region.

The restructuring could reshape the regional telecommunications landscape. América Móvil, which in 2019 already bought Telefónica's operations in Guatemala and El Salvador for $648mn, may emerge stronger if it acquires more assets, although regulatory authorities are expected to scrutinise any significant consolidation. The Mexican group has been Telefónica's main rival across Latin America.

The Spanish telco’s pivot points to a broader change in how global operators approach emerging markets, favouring regions with greater regulatory certainty and currency stability over those with high growth potential. This marks a significant departure from the expansion-driven strategies that characterised the sector's approach to emerging markets in previous decades.

Brazil, operating outside Telefónica's Hispanic America division under the Vivo brand, will remain the group's primary Latin American presence, given its market size and relative economic stability. The Chilean operation may keep its current structure for now, although market conditions continue to evolve.

Meanwhile, the firm plans to maintain its foothold in Venezuela, where it recently announced plans to invest $500mn over the next two years to deploy 5G technology and bolster its existing 4G network, following its successful bid for additional spectrum in the 2,600 MHz band.

Telefonica’s Latin American retrenchment reflects a fundamental shift in multinational telecoms groups' strategy, as sustainable returns and risk management take precedence over market share and regional presence amid accelerating digital transformation. It also raises questions about the future role of international operators in emerging markets, where local and regional players may gain greater influence.