In January, Santiago Argelich Hesse took charge of Telefónica Deutschland after Markus Haas left the chief executive role. He now faces a sharp reset at the German company behind the O2 brand. The plan covers 150 artificial intelligence applications. It also calls for 1,100 job cuts in 2026, alongside the closure of 60 company-owned stores.
The pressure began with the loss of 1&1. The rival operator stopped renting O2's mobile network and moved to Vodafone's network. Telefónica Deutschland lost as much as €500 million in annual revenue. Sales fell 3.8% in 2025, then dropped another 9.8% in the first half of 2026. Company materials and independent market reports put 2025 revenue at €8.2 billion.
The 1&1 effect should stop distorting comparisons from 2027. Until then, the German unit must absorb the commercial damage while cutting costs. It also needs new sources of growth.
Argelich Hesse has moved quickly. He wants a simpler organisation and says modern AI systems can reduce the complexity of processes and internal systems. Reuters has also identified him as the new head of Telefónica Germany as the business adjusts to 1&1's move to Vodafone.
O2 is already using the technology in network management, where it has cut energy use by 10%. Other applications give customers self-service options, personalize services and speed up internal processes. The company is deploying AI across the organisation, including in services that are not customer-facing.
The plan has a direct human cost. O2 agreed this summer to a restructuring plan affecting about 1,100 employees, or 16% of its workforce of roughly 6,800 people. Telefónica Deutschland has set aside €265 million for the programme.
More cuts may follow. Sales and customer service will be further consolidated in 2027 and 2028. Total departures could reach around 1,600 employees.
The retail network is shrinking. O2 will close 60 of its 800 company-owned stores as more customers turn to digital channels.
Fixed-line services remain a weak spot. Telefónica Deutschland owns very little fixed infrastructure and does not plan a large fibre rollout because construction in Germany is slow and expensive. Fibre currently reaches 50% of the population, making access agreements with Deutsche Telekom and Vodafone, alongside newer fibre operators, central to O2's broadband offer.
Argelich sees a faster route in business and public-sector contracts. O2 holds less than 5% of that market, which Telekom and Vodafone dominate. It has already won 2026 contracts with major German retailers, including Deichmann and JYSK. The company also wants a bigger wholesale role through Aldi Talk, whose mobile service has almost 10 million customers.
O2 plans to position its existing brand as premium, while a new brand would target the middle segment. The proposed portfolio spans mobile and fixed services, with television and other digital products, including security.
A takeover of 1&1 is not part of the current plan, the CEO has said, though he has not ruled out examining opportunities. He believes Germany's market is stronger with three operators rather than four. 1&1 faces major network rollout commitments in a market that is not expected to grow. Its value has doubled since 2025 to about €4.3 billion amid consolidation speculation.
The numbers explain the interest. O2 held 6.4% of Germany's broadband market in 2025, while 1&1 held 10.7%. Together, they would reach 17%. Vodafone held 27%, compared with Telekom's 40%.
The reset goes beyond an AI project. Telefónica Germany is moving away from wholesale dependence toward tighter operations and selective growth. AI may improve efficiency, but O2 still has to repair its network position and replace revenue lost after 1&1's departure. It also faces painful staffing decisions. Underlying growth will be judged in 2027.
