April 3, 2012
Last week I attended Telefónica’s leadership event, which is held annually in Miami, reflecting its very strong basis in the Americas. This year’s event attracted around 700 visitors from 130 countries, comprising Telefónica’s customers, vendor partners, and analysts. There were several external keynote speakers, like the CIO of the US government, futurologist Michio Kaku, and the chief economist of the Economist Intelligence Unit, that outlined the macro context for society and the economy over the coming 10 to 20 years. Presentations by partners like Huawei, Microsoft, Nokia, amdocs, and Samsung highlighted visions of the future from a vendor angle. Telefónica itself used the opportunity to present its own vision of how technological progress will affect society and business — and how it intends to address the opportunities and challenges ahead.
Telefónica stands out from its peer group of incumbent telcos by having revamped its overall organizational structure. The firm had already announced this new structure last fall; it effectively sets up one division that focuses on global internal administration and procurement (Global Resources), one division that focuses on emerging Internet-based solutions (Digital), and two geographically focused go-to-market-facing business lines (Americas and Europe). Telefónica Multinational Solutions is part of Global Resources and is the division dedicated to delivering services to the MNC segment.
Telefónica is not aiming to devise cutting-edge solutions like Telus did when it revamped its entire service delivery platform to better address emerging opportunities in the data analytics and dynamic charging space. Telefónica, by contrast, is fairly conservative and has a traditional portfolio despite its moves into mobile device management, cloud, M2M, and telecom expense management. In Miami, Telefónica demonstrated its ability to develop innovative solutions, such as a tablet solution in the customer relationship management space. But the majority of business customers are embracing a cautious approach to cutting-edge solutions are concerned — an observation supported by Forrester survey data. Still, Telefónica did report that BYOD is also becoming an issue in Latin America, although there the phenomenon is not limited to smartphones and tablets but also encompasses feature phones.
My bigger concerns relate to the consumer side and the dynamics that over-the-top providers (OTTPs) bring to the market — which admittedly was not a major focus of the event. And to be sure: Telefónica repeatedly emphasized the power and central role of the consumer in all ICT developments in several presentations. But I did not get the sense that Telefónica, like most other telcos, has fully internalized the OTT trend and digested the dramatic implications for its long-term business model. Memories of the somewhat awkward attack by Telefónica, Vimpelcom, and Bharti Airtel on OTTPs at this year’s Mobile World Congress for using telecoms’ network infrastructure without paying for it are still fresh.
Telefónica should not ask OTTPs to pay for the use of network infrastructure — and they never will. Instead, it should think of solutions, such as context-related information or E2E IP session management, that add enough value that OTTPs will want to pay for them. At the same time, Telefónica should also devise higher-priced solutions for consumers with a demand for rich OTT solutions like HD video. Those consumers who want a top-quality OTT experience need to appreciate that top-quality connectivity is essential — and that they need to pay for it. In fact, we will publish a report on the OTT issue in Q3 2012 to investigate the implications of the OTT model for telcos and end user companies.
Telefónica’s repositioning is not revolutionary. But the telco’s straightforward operational setup, as simple as it sounds, addresses three crucial aspects. First, Global Resources addresses potential efficiency gains through scale effects and standardization regarding global shared services and sourcing, including network sharing. Second, its geographically positioned business lines focus on effective customer-facing delivery channels rather than technologies. Third, Telefónica has put in place a clear innovation driver and business model transformation enhancer in the form of Digital. I believe Telefónica will be able to evolve its solutions to address the demand for emerging ICT services. The existence of a dedicated in-house university promoting a free exchange of internal and external ideas is a positive sign of commitment to this process.