Telefónica Germany is rebuilding after losing 1&1. AI should cut costs as the operator expands fixed-line services, targets business customers and keeps network deals on the table.
In January, Santiago Argelich took charge of Telefónica Alemania after moving from Cellnex. He now expects mobile revenue to recover in 2027 and the company's strategy to reach cruising speed in 2028. The loss of 1&1 still distorts the 2026 comparison, according to Cinco Días and EFE. Most of that effect should fade by 2027.
Argelich has started changing the operating model, governance and management structure. The plan includes voluntary departures for 1,100 employees. Telefónica also plans to redesign its retail network.
Germany generated around 23% of Telefónica Group revenue in the first half of 2026, underlining the strategic importance of the local business beyond its domestic market position.
Germany matters to the group.
AI is part of the cost plan. Telefónica has already deployed 150 use cases across the organisation. Argelich said automation should reduce the workforce gradually through a natural process, rather than through another collective dismissal programme.
The financial strain is clearest in mobile services. Telefónica Germany generated €3.693 billion in the first half of 2026. Mobile operations accounted for €3.231 billion. The company had 39.8 million lines, but only around two million were broadband connections. More than 35 million were mobile.
Mobile revenue fell 7.8% during the period. The loss of 1&1 continued to weigh on the business.
That dependence points to the main growth opportunity. Telefónica wants better agreements with fibre operators and plans to sell convergent packages closer to the model used in Spain. Germany's fibre market remains fragmented. Copper still carries many fixed connections, leaving room for commercial partnerships.
Telefónica has also announced an AI-based observability service for enterprise customers. The offering is designed to help businesses monitor digital operations and processes, illustrating that the group’s AI strategy extends beyond internal cost reduction into its B2B portfolio.
Telefónica also wants a stronger position between premium and low-cost services. Argelich says the company lacks a strong enough brand for the middle segment. It is considering a new name or the consolidation of an existing one. That would give O2 a clearer place among customers who want more than the cheapest offer but do not want a premium package.
Germany's weak economy creates another opening. Companies facing higher energy costs and limited growth are reviewing their telecom budgets. Deutsche Telekom still holds a strong position as the former monopoly. Telefónica says O2 can now offer business customers technology comparable to Vodafone and Deutsche Telekom at better prices because the old reliability gap has been fixed.
The approach has already won accounts such as Deichmann stores and an agreement with Siemens. Business services remain a small part of Telefónica Germany's accounts. The modernisation of the economy gives the operator a route into a segment where it has had a limited presence. EL MUNDO reported these developments after a meeting with journalists in Munich.
The harder question sits outside the formal plan. Argelich has said Germany's market could be better served by three operators instead of four. That keeps a possible combination with 1&1 in the industry conversation. He did not name a transaction. He pointed instead to network infrastructure.
n-tv and El Confidencial reported that Telefónica remains open to corporate combinations. No specific German transaction has been presented.
Network sharing is less developed in Germany than in other parts of Europe. Telefónica sees that gap as an inefficiency and questions whether the current setup can last over the medium term. Sharing arrangements involving its mobile network could therefore offer a faster route to consolidation than a confirmed merger.
The company is changing course.
Telefónica Germany is cutting complexity with AI, looking for fixed-line partners and pursuing corporate customers. It is also keeping the door open to infrastructure deals. The recovery will depend less on restoring the old 1&1 model and more on building a leaner operator with a wider role in Germany's telecom market.
