Monday, June 5

This is how Telefónica makes money: the leader of the telecoms wants to exploit its technological developments

This is how you make money… is a series of weekly articles from Xataka in which we analyze the business model of the big technology companies: which divisions give them real benefits and which do not, what are the true core of these companies that have transformed the world. Today, a company somewhat different from the others, which lives among the technological engulfment caused by the big ones in the United States or Asia; and the desire to be something more than a teleco. The oldest company that has passed through this section. It will be centenary before the end of this decade. And Spanish. Telephone.

Recounting the x-ray of Telefónica is recounting the present of a company shaken by the passing of the years, forced to choose between the uncomfortable path of reinventing itself in order to adapt to the times and remain relevant, or settle for offering a commodities such as fixed and mobile broadband, and diminish in meaning. She chose the former. And that makes him especially interesting.

Network rental: another key in the merger dance between Orange, Vodafone and MásMóvil

Many countries and a new division

Telefónica is divided into subsidiaries that group their activity in various regions, as well as in Tech, the most recent tangential division that sells technology services in the cloud (its most outstanding business), cybersecurity, Big Data or the Internet of Things, not telecommunications in specific countries. It was founded in 2019 to offer these digital services to companies, especially national ones.

Thus, Spain, the United Kingdom, Germany, Brazil, Hispam and the aforementioned Tech are its divisions. Spain is still the majoritywhere it achieves almost a third of the group’s turnover.

Telephone Graphics 001

In Spain, and with its telecommunications services, its main activity and for which it is best known, it achieved more than 14,000 million euros in revenue in 2020, well ahead of any of its rivals. Even if the merger of Orange and MásMóvil is consummated, which would result in a leading operator in terms of both mobile and broadband customers, not even the sum of both in terms of revenue would take the leadership away from Movistar.

Also Read  This is the virtual cemetery of products abandoned by Microsoft

This factor can be explained by its premium price packages in which it includes live sports broadcasts, something that shoots up the average price per user; as well as its corporate services, where it is traditionally strong and which increases the average revenue per user.

Telephone Graphics 002

However, this billing is marked by two nuances. On the one hand, the historical evolution of Telefónica in Spain limited to its fixed, mobile and audiovisual services. After a constant increase in the first decade of the century, the 2008 crisis caused it to go down from 2008 to 2015, when it hit a century low with just over 12,000 million euros. Since then, it has recovered positive inertia, although in the first year of the pandemic it experienced a setback in its billing.

Telephone Graphics 003

A good part of the increase in turnover experienced as of 2016 has to do with the offer of sports broadcasts, with LaLiga and the Champions League in the lead; as well as with the leap it was able to make in its role as a television operator with the purchase of Digital+, approved in 2015.

This other graph can be seen more clearly. It is the number of pay television subscribers of any operator (Vodafone, Orange, Euskaltel, Telecable, R, etc) in the last decade, and Movistar’s market share in each financial year.

Telephone Graphics 004

Since 2014, the year in which the purchase of Digital+ began and in which Movistar became the pay television giant in Spain, both indicators began to skyrocket, although Movistar has been losing market share for some years. And in 2020, for the first time in a long time, the total number of subscribers decreased, something that may be caused by the rise and consolidation of video-on-demand platforms that do not require linking to a specific operator, in the case of Netflix, HBO and company .

Also Read  Between teleworking and earning $30,000 more, many are clear: it is better to stay at home

The history of Canal+ in Spain, from encrypted broadcasts to Telefónica

In landlines and mobiles it is also the leader, both in billing, as we saw before, and in market share. Movistar includes both its main commercial brand and its two alternative brands, O2 and Tuenti. The rest also include their alternative brands, such as Lowi and Vodafone; Jazztel, Simyo and Orange; or the long portfolio of the Másmóvil group, which includes Yoigo, Pepephone and Lebara, among others. The “rest” section is mainly carried out by Digi and Finetwork.

Telephone Graphics 006

In recent years there are some lines of business from which Telefónica has said goodbye, in the case of Telxius less than a year ago: the transmission tower company in Europe and Latin America was sold for 7,700 million euros, an amount destined above all to reduce debt, a problem that reached 52,000 million euros and that has been reduced since 2016 to less than half. And continues.

Even so, the enormous rise of the Internet and technology in recent decades has been a double-edged sword for the company. Privatized in 1997 and paid for the crisis of dot com at the beginning of the century, The 2008 crisis came at the same time as the rise of smartphones, and with them, of OTTs, services offered through the network without the operators having control over their content and distribution. Unlike in the past, when we sent SMS messages and downloaded content from WAP portals, now they are residual services and consumers opt for instant messaging like WhatsApp and download through application stores, not from the WAP portals of their operators .

Requiem for Terra: life, glory and death of the first Internet giant in Spain

This Perfect stormtried to be palliated by offering value-added services on fiber and mobile lines, has caused a severe drop in the value of Telefónica’s shares, which was close to 35 euros just before the 2008 crisis and today barely exceeds 5 euros.

Telephone Graphics 007

Some operations, such as the sale of assets (such as the aforementioned Telxius) to reduce debt or the successful launch of O2 in 2018, which has already borne great financial fruit, have caused 2021 to close with unprecedented profits since 2009, after a trend downward trend that lasted the entire past decade.

Also Read  Netflix is ​​now the weak link in streaming. The future solution will surely go through the announcements

Telephone Graphics 005

At present, and for some time now, Telefónica’s main battle, like that of other operators, is to obtain maintain relevance and differentiate itself in the telecoms market so as not to fall into the role of commodities and that their offers are indistinguishable, where the same service is contracted to access platforms and services that do manage to differentiate themselves. That is where the efforts to offer sports broadcasts exclusively or to package services from these third parties come from, such as the agreements with Netflix or DAZN. Or other launches that do not seem to have brought too much joy to the finances of the company, in the case of the Movistar Home speaker with screen and proposals in that line.

Other similar proposals are the offers added to fiber and mobile, such as Movistar Salud, Movistar Prosegur Alarmas or Legálitas for professional clients: additions that reinforce the perception of value and hinder portability to other operators. In the mobile they are visceral, in the fiber the decision making is longer and with these additions it is much slower. Same retention principle as the “free” smartphones that have been offering for a year so that their users stay at least three years in the company. And it also explains the commitment to the Tech division: take advantage of developments sold to third parties, not only implemented for the activity of the operator itself. Something that is beginning to be a trend in large Spanish companies: it is the same movement that LaLiga made a few months ago.

Leave a Reply

Your email address will not be published. Required fields are marked *