Telefonica : Digital and Dangerous !!

Presentation200Telefónica is one of the world’s largest telecommunications companies with operations across 25 countries in Europe and Latin America and over 300 million customers. They are known better through their commercial brands: Movistar, O2 and Vivo. Much of Telefonica’s innovation focus has been on building a strong media and content business to provide value in its own right and to provide pull-through for the core mobile (and fixed) broadband business. But they have recognised the need to move beyond basic connectivity to succeed.

Many Analysts believe that Telefonica is probably the most advanced operator globally, in migrating from traditional telecoms to a smart services Telco. Telefonica have set out to profit from the opportunities afforded by the digital world with respect to new products, services and value chains, both in markets where the company operates directly and those in which it has industrial alliances or the potential to operate directly in OTT (over the top) businesses. Digital transformation and intelligent consolidation can guarantee shareholders annual returns of 10% and more, on a par with top utilities. To seize new opportunities in the Digital World Telefónica Digital was formed . They expect to create annual revenues of €5bn for Telefónica by 2015 with an annual revenue growth rate of 20%, as well as driving considerable additional benefits to Telefónica operations. Telefónica Digital has four main focus areas:

Product Development and Innovation – the development of proprietary products and services through Telefónica R+D and other R&D operations

Partnership & Venture Capital – Telefónica is committed to open innovation and where it cannot build products or services it will partner with, invest in or potentially acquire other companies large or small

New Digital Services – bringing to market, directly or through Telefónica operating businesses, new products and services across seven key segments – financial services, M2M, eHealth, advertising,video & media, security and cloud computing.

New Business Areas – creating new business opportunities in areas such as over the top communications (TU), Big Data (Telefónica Dynamic Insights) and HTML5 (Open Web Devices)

Telefónica Digital will deliver these new products and services to Telefónica’s 311 million customers as well as entering new markets.It is specifically focused on the services layer – both end-user services and enabling services for third-party service providers (including advertising and security). It will leverage Telefonica’s network where it makes sense to do so (e.g. for M2M) but will not be tied to the network if it makes sense to build OTT services (e.g. Tu Me, one of its OTT voice services, is available for non-Telefonica customers). Through a series of strategic partnerships and acquisitions Telefonica has positioned themselves as the Uber Gurus of the New Age Telcos. It seeks to buy (e.g. Terra, Tuenti , Jajah), build (e.g. Priority Moments) and partner (via various models including Wayra, in which Telefonica makes seed capital available to early stage businesses). It is also driving innovation in over the top communications under a new umbrella brand called TU and in Big Data through Telefónica Dynamic.

Predictable performance driven delivery of digital capability is the basic building block for next generation competitiveness. As such Telfonica’s business model has also evolved over time. They have realised that charging the end-user per minute or per Megabyte – is under pressure as new business models for the distribution of content and transportation of data are being developed. As such they need to be capable of charging different players – end-users, service providers, third-parties (such as advertisers) – on a real-time basis for provision of broadband and guaranteed quality of service (QoS). The knowledge that operators have about their customers coupled with their skills and assets in identity and authentication, payments, device management, customer care etc. mean that the networks can be enablers in digital transactions between third-parties – helping them to happen more efficiently and effectively. A smart network strategy is built on three pillars : enabling platforms, ecosystem integration, and customer analytic to : foster participation and encourage collaboration among an array of multimedia players and provide real-life insights into how customers behave in the digital world and allow for tailored, timely, and relevant growth.

Telefonica management displays all the hallmarks of RAPID PROTOTYPING. In the product development world , Rapid Prototyping is a faster, more effective and lower-cost method of designing and testing an innovation hypothesis before the product launch. Which basically means Telefonica has more open, agile and entrepreneurial, and make it easier for companies of all sizes, from small startups to global giants, to do business with them .They move quickly to bring products and services to market through its operating businesses or in some cases directly to customers. Underlying this adaptive and agile mindset is a powerful social conscience because they believe they can play a role in tackling pressing social needs using the transformative power of technology, from mobile payments to connected machines and eHealth. Unless technology companies solve basic human problems they cannot survive in the long term anyway.

In Barcelona MWC the Telefonica CEO said that his company intends to charge OTT players for the use of their network. This is a good thing since all the Telco value chain players must shoulder the investment burden of upgrading the mobile internet infrastructure to handle the data tsunami . Currently the disconnect between sources of revenue and sources of cost is squeezing value out of the Internet. The Internet ecosystem must find negotiated efficient solutions to its structural problems , allowing customers to continue to enjoy high quality innovative services.

Sadiq Malik ( Telco Strategist )

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