But what does this prevented merger really mean for the UK telco market? What does it mean for business customers? And what does it mean for the telcos concerned? In my opinion:
UK consumers should expect the same dull mobile offers that they have been receiving for years. There are no signs that any telco in the UK market is about to radically rethink its offering along the lines of the T-Mobile US reset that John Legere kicked off several years ago after the T-Mobile/AT&T merger fell through. Rather, I expect more business-as-usual in the UK and no step-change in mobile broadband investments, and as a result, no great benefits for consumers to arise as a result of the merger blockage.
Telefónica entered into an exclusivity agreement with Hutchison Whampoa regarding Hutchison's potential acquisition of the Telefónica subsidiary O2 UK for £10.25 billion in cash, valuing the deal at an estimated 7.5 times 2014 EV/EBITDA. The Hutchison-O2 UK deal — should it complete — will entirely redraw the telco landscape in the UK in terms of market shares. The acquisition of O2 UK will transform Hutchison from the smallest mobile operator with 7.5 million customers to the largest with 31.5 million customers and reduce the number of mobile operators in the UK from four to three.
This development follows on the heels of the announcement by Orange and Deutsche Telekom that they have entered into exclusive negotiations with BT Group regarding a potential divestment of 100% of their shares in EE, their joint venture in the UK. The increased merger activity is not surprising, and we predicted as much in our report Predictions 2015: Telecoms Will Struggle To Align To The CIO's BT Agenda. Still, these deals raise important questions for the European telecoms markets:
Co-authored by Henning Dransfeld and Jennifer Belissent
Telefónica recently invited us to its European Analyst Day at the headquarters of Telefonica UK (O2) in Slough. Jose Luis Gamo Global Solutions CEO Multinationals started off the day with an ambitious outlook on strategy and revenue growth. He highlighted Telefónica plans to deepen customer engagements by addressing their needs for global contract consolidation, as well as demands for M2M solutions, big data and analytics and cloud services. Telefónica certainly has a lot to offer. But is Telefónica doing enough to position itself well in the evolution to markets driven by customer experience? We believe that there is potential because:
Telefónica is increasingly competitive in winning global enterprise network contracts.After the global landmark deal with DPDHL, Telefónica has added companies including Ferrovial and NSN to its customer base. Telefónica, the largest European operator by capitalization, is increasing contract values with existing customers through cross selling activities. Their ability to do so is enabled by a demonstrable focus on the following initiatives: Strengthening professional account management, increased commitment by Telefónica group to the enterprise market, as well as initiatives to improve service management, the technical architecture, customer services and the terms and conditions.
I recently attended an event in London where Telefonica shed more light on its Digital division. Digital is the central division driving innovation at Telefonica group and was formed in September 2011. However, Telefonica, despite the creation of Digital, still is somewhat in the old telco mold of inside-out innovation.
Digitization is undoubtedly a major theme affecting both society and the economy, bringing huge implications for communication, collaboration, consumption, and production. The big focus areas for Digital are e-health, digital content distribution, security, cloud, M2M, OTT comms, financial services, and advertising. In this respect, Digital is the right answer. My main observations from the event are:
Digital’s product development process is not end-user-focused enough. Digital does not seem to involve the actual end users as much as other solution providers, like for instance Colt (http://goo.gl/oBCO0). What was missing during most presentations was a better demand-analysis of its customer base. Digitization has big implications for company cultures, modes of operation, and ways of life. Businesses require significant assistance in preparing for these challenges such as change management. Digital did not explain how it plans to address these either through internal capabilities or through partnerships with business consulting firms like Deloitte. This means that Telefonica risks developing solutions that do not meet demand. Moreover, detailed customer case studies were not discussed, although Digital did present its portfolio development approach.
Mobile digital wallets are emerging and going beyond payment. New technologies, mixing QR codes, apps, personal financial management software, NFC, and many more, are combining to convert mobile handsets into digital wallets that combine not just payments but also receipts, vouchers, and loyalty. Beyond the convenience of using the phone for payment, consumers will benefit from post-transaction elements such as location-based coupons or enhanced product information at the point of sale (POS).
We’ve not seen a single day without a new product launch, start-up creation, or acquisition — or a new strategic alliance between banks, payment networks, Internet firms, or mobile operators.
So what’s new today? Telefonica 02 just announced the launch of O2 Wallet in the UK.
We believe that the O2 Wallet is, for now, the most comprehensive mobile payment solution in the UK – available to a majority of smartphone owners, whether they are O2 customers or not. The new product combines the following functions:
Money Message — This gives customers the ability to easily transfer money to any UK mobile phone number.
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.
Around 60,000 global movers and shakers of all things mobile once again descended upon Barcelona to attend the leading annual mobility event, the Mobile World Congress (MWC). This year’s main themes centered on metadata analytics, the customer experience, and over-the top business models:
The big data opportunity fueled the fantasies of almost all MWC attendees. In the case of telcos, data analytics is seen as the driver for improving the customer experience and developing new markets. Telcos talked a lot about the opportunities of analysing user behavior and turning user data into the new operator currency. The context- and location-aware nature of mobile solutions makes the big data opportunity particularly attractive. However, despite the talk, there were practically no case studies of operators that have succeeded in monetizing data on a large scale. Progress regarding data monetization is slowed down by a lack of clear business models, but also by an OSS/BSS infrastructure that does not support real-time or near real-time analytics. Moreover, privacy concerns also act as a drag on the uptake of data analytics. Equipment vendors such as Nokia Siemens Networks, meanwhile, showcased their customer experience management and analytics solutions for telcos. The solution combines analytics and the actions that operators must take to correct or improve the end user experience, such as a level one call handler pushing the correct settings to a phone or a marketing manager setting up a marketing campaign.
One of the (many) things I have been working on for the past few months is this year’s European Marketing & Strategy Forum, which is taking place on the 16th and 17th of November at the Grove, just outside London in Hertfordshire.
Our theme is about driving innovation for the next digital decade and what that means for leaders. We’re particularly focusing on some of what we see as the big disruptions of the coming digital decade: the growth of mobile Internet use; the growing demographic diversity brought by ageing populations; and the increasing economic weight of emerging economies, particularly the BRIC (Brazil, Russia, India, China) countries
I’m particularly pleased that we’ve got such a strong line up of eBusiness and channel strategy executives presenting this year, including:
The word for “crisis” in Chinese apparently comes from two roots meaning “risk” and “opportunity” – there is both a downside, and the potential for an upside. That’s how César Alierta, Telefónica Chairman and CEO, began the opening keynote of their 2010 Leadership Conference in Miami (where I spent several days last week). For Telefónica, that definition has played out with the global economic crisis. While results in Spain have been their downside, Latin America has been the opportunity. Telefónica has a presence in 15 countries in Latin America (and 42 countries worldwide), with offerings in mobile and fixed telephony and in IT services. Not all offerings are available in all markets but in many countries Telefónica has leveraged a strong position in one offering to expand into the others becoming the first integrated operator in the region.
According to José Maria Pallete, CEO of Telefónica Latinoamérica, Latin America represents 65-70% of their total customer base, 40% of revenues and about 40% of the operating income. In the enterprise space (as opposed to consumer services), 37% of Telefónica revenue comes from Latin America. That corporate segment (including public sector) marked double digit growth in Latin America in 2009, with its biggest markets in Brazil and Mexico.