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Telefonica Holds Key to Digital Model

Ray Le Maistre
10/13/2011
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LONDON -- Wired 2011 -- The relevance of telecom operators to their customers is on the wane and only a radical shift in strategy that involves the development of new services, business models and relationships (with partners as well as customers) can help turn that tide, stated Matthew Key, CEO of the newly formed Digital division of Telefónica SA (NYSE: TEF). (See Telefonica Restructures, Creates New Units and Telefónica's Looking Trendy.)

Speaking during a Q&A session at the Wired 2011 conference, sponsored by Telefónica Europe plc (O2) , Key noted that as the mobile ecosystem is changing (a shift precipitated by the arrival of the iPhone), so "mobile operators' relevance to customers is changing and reducing. We have to be honest about that and we need to address that."

Addressing that situation involves "changing the business model. ... We need to create new services and revenue streams [and] be sure that customers are getting value" from multiple services and applications beyond basic voice and texts.

An important factor in developing new opportunities is the utilization of the massive amounts of data about its network, services/applications and subscribers. "We have very rich data and we're not using it" to its potential, noted Key. That data can be used as the foundation of location-based applications, to identify customers' content and services preferences and also provide customers with useful information about their usage habits, something that should improve the increasingly important customer experience.

But for a large traditional telecom operator such as Telefónica, the development of new services presents something of a dilemma, as most of these new services and applications will result in a reduced use of voice and text messaging, currently the main drivers of mobile services revenues.

Key said Telefónica has recognized this. "This is the biggest factor -- the mindset shift. We can't close our eyes to [the impact of over-the-top services]. ... We have to embrace the future and change our raison d'etre. ... We can't operate in a walled-garden environment."

That's why the new Digital division has been set up as a separate operation -- so that it can behave and develop like a separate organization and then inform the rest of the group and feed it new ideas, business models and services, even those that cannibalize existing revenue streams. That autonomy is important to being able to deliver against its mission, Key noted.

Even though the different parts of Telefónica Digital are still getting to grips with working together and building new opportunities, there are some initial services and applications from the Digital camp Key was able to reference. The O2 Connect VoIP trial in the U.K. will look to find out how O2 customers might use Wi-Fi connections as more than just data offload points, while an O2 wallet application using near-field communications (NFC) is set to be launched during the next three months following a trial in London's Docklands area. (See O2 Trials VoIP Service and Telefónica Buys VoIP Player Jajah.)

But Telefónica Digital can't achieve those goals by itself, he added. "We're not going to be able to build and own everything ourselves, so we need partners to help deliver," he stated.

Some of those partners could be startups that might need assistance and help, including financial help. Is that something the new Digital division can offer? "Telefónica Digital can fund entrepreneurs. We are actively looking for investment opportunities at bright young companies," stated Key.

— Ray Le Maistre, International Managing Editor, Light Reading

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