Telefónica doubles down on the smart home

Telefónica has created a global unit, known as the Chief Digital Consumer Office (CDCO), which will champion new digital products and services, paying particular attention to the smart home.

Led by Chema Alonso, the team will aim to drive forward the Aura AI digital assistant, as well as continue the creation of the ‘fourth platform’. The initiative will help take Telefónica into the digital era across several areas, but there does seem to be particular attention being paid to the smart home ecosystem.

José Montalvo will become Chief Data Officer, with a primarily focus on the development of the fourth platform project, including integrating new products and services such as Aura onto the platform. David del Val will become Director of Core Innovation, with a particular focus on edge computing. Antonio Guzmán is the Director of Digital Home, tasked with overseeing the development of the smart home and digital services ecosystem.

These are only a few of the names, but it does appear Telefónica is hoping to create a standardised smart home ecosystem for the markets which it currently operates in. This is an incredibly intelligent approach to creating value in the future, and with its global presence, Telefónica can provide competition to other players who are attempting to create a platform to control the smart home ecosystem.

This initiative builds on progress being made in the smart home following the announcement of a partnership with Microsoft at Mobile World Congress last year.

Alongside Microsoft boss Satya Nadella, Telefónica CEO Jose Maria Alvarez-Pallete launched the fourth platform initiative in attempt to own the smart home ecosystem, seemingly learning from the ‘walled garden’ business model which has been so successful for the likes of Facebook.

In this model, Telefónica leverage its relationship with the users, creating a platform for third parties to offer products and services. Telefónica will of course offer its own services, such as content, but why not create revenue by monetizing the link between the user and other companies in the digital economy.

While the smart home is still emerging as a viable segment in the digital economy, this is a very intelligent move from Telefónica . Connected objects are becoming more common, as there will need to be a focal point to manage this ecosystem, but also guarantee security. Telefónica has a trusted relationship with the consumer, a recognised digital assistant and the power of Microsoft as a partner. This is not a guarantee, but at least Telefónica is trying something new under the threat of the connectivity industry becoming commoditised.

Telefónica reportedly receives €10 billion bid for 51% of its Hispanoamérica business

A group of Latin American oligarchs seem to have had a whip-round to buy a majority stake in all Telefónica operations in the continent, bar Brazil.

The rumour comes courtesy of Spanish newspaper El Mundo, which claims the fattest cats in each of the Spanish-speaking Latin American countries Telefónica currently operates in have clubbed together to bid for a controlling stake in Telefónica Hispanoamérica for €10 billion, which they would then distribute among themselves. It looks like the plan then would be to IPO another quarter of it to claw back some of the cash.

We’re told the bid originated from Colombia, but covers Argentina, Chile, Venezuela, Ecuador, México, Perú and Uruguay too. It should be stressed that when El Mundo approached Telefónica about the story, it denied there is evidence of the offer, which seems a tad slippery. It’s certainly no secret that Telefónica wants to flog its Hispanoamérica unit, since it formally announced the plan late last year.

If any of this is accurate it values Telefónica Hispanoamérica at around €20 billion, which is serious money. But even if it sold all of it for cash, that would still only halve the epic debt pile it has managed to accumulate over the years. On the flip side it would then have the liquidity to double down on its European and Brazilian operations, which should make things interesting in those markets.

Telefonica sells 2,029 towers in Ecuador and Colombia

Telefonica has confirmed the sale of 2,029 towers in Ecuador and Colombia for €290 million to Phoenix Tower International.

This is one of the first signs we have seen of the Telefonica ‘Five Point Plan’ becoming a reality. Telefonica is a business which is seemingly drowning in debt, and one pillar of this new strategy has been to monetize tower assets around the world.

“We are honoured to expand our relationship with Telefonica in Ecuador and Colombia and look forward to working closely with them on their ongoing wireless build-out initiatives across the world,” said Phoenix Tower International (PTI) CEO Dagan Kasavana.

“These transactions are exciting for PTI and will allows us to become the market leader in Ecuador, a USD based market with three healthy wireless operators with significant 4-G build-out needs in the coming years. The transaction in Colombia solidifies PTI’s strong market position with over 1,800 owned towers. Colombia has been a great market for PTI, and we see continued growth from all of the carriers in the coming years.”

The Telefonica executive team has been under considerable pressure over the last few years to deliver additional value and drive down the debt. It seems this pressure has only intensified as the realities of 5G and fibre investments start to become a reality. The disposal of passive infrastructure is one-way numerous telcos are raising funds to fuel future ambition.

Telefónica Deutschland picks Huawei and Nokia for its 5G RAN

As part of a broader announcement concerning its 5G plans, Telefónica Deutschland revealed Huawei and Nokia are the chosen kit vendors for its 5G radio access network.

Referring to them as ‘proven strategic partners’ TD indicated that it has an established working relationship with the two vendors and doesn’t see any need to change that. That said, TD also noted that they will have to pass a safety certification as required by German law, the details of which are still being thrashed out.

So TD seems to be saying it has no problem with Huawei, at least in the RAN anyway, but ultimately it can’t fully commit to it until the government makes up its mind whether or not it constitutes a security threat. What will happen if the government does throw a spanner in the works is unclear, but since TD has a multi-vendor policy that might be good news for Ericsson. The decision on the core network will apparently be made next year.

The broader strategic statement made by TD is to significantly accelerate its growth for the next couple of years by spending 17-18% of its revenue on expanding its 4G network and getting its 5G one off to a flying start. As Light Reading notes, this will require a dividend cut, which will upset some investors, but you can’t have it both ways and the money has to come from somewhere.

Spain and Portugal resist US pressure over Huawei

Portugal is the latest western country to say it won’t ban Huawei from its 5G network, while Telefónica Spain is using Huawei for its 5G core.

AP reports that Portugal formally notified the US it won’t be excluding any Chinese vendors from participation in its 5G network. The report goes on to note that Portugal already has a fair bit of Chinese infrastructure investment and may be wary of putting that sort of thing in jeopardy. If so, that’s further evidence that the whole 5G security thing is a proxy for the broader geopolitical tussle between the US and China and that China may be threatening further consequences for countries that pick team US.

Meanwhile Telefónica has revealed it will be using Huawei in its Spanish 5G core, indicating there’s no ban from the Spanish government either. Expansión got the scoop and Reuters got confirmation from Telefónica. Both reports note that Telefónica is moving to a multi-vendor strategy having been all-in with Huawei, so that would appear to mark some kind of concession to security concerns.

US President Trump has been in the UK for a NATO summit and has inevitably been whispering in the ears of allied leaders about the perils of Chinese involvement in 5G networks. While the UK is still agonising over the matter, general European sentiment seems to be warming to Huawei, which could lead to diplomatic repercussions down the line. It seems the lack of hard evidence of the security threat Huawei is accused of posing is seriously undermining the US position.

Telefónica enters ‘new era’ with major business restructure

Group CEO José María Álvarez-Pallete has unveiled a five-point strategy which include prioritising Telefónica’s growth markets.

The four markets to be prioritised will be the UK, Spain, Germany and Brazil, while the other points include spinning off the rest of the LATAM businesses into a single unit, the creation of a cybersecurity, IOT and AI division and a tower unit, as well as restructuring the management structure. Álvarez-Pallete claims the new strategy will add an additional €2 billion a year to group revenues.

“Geopolitical, macroeconomic and regulatory uncertainties, and high competition in the sector require an increasingly demanding allocation of capital,” said Álvarez-Pallete.

“If in the past the low penetration of voice and data services assured future growth, the current maturity of the markets and the appearance of new competitors subject to different rules demand a highly focused strategic approach.”

The plan will aim to prioritise areas where the business sees greatest opportunity for profits, but perhaps also the most significant threats. In the UK and Germany, for example, the national business units are pure-play mobile operators. This will allow Telefónica to concentrate investments, though it does present the risk of being undermined by converged product offerings, a strategy of most major rivals in these markets.

For the moment, it is not entirely clear how this plan will materially impact operations in these markets, though it is a sensible business strategy. The four markets mentioned above account for 218 subscribers, 63% of the total across all group operations, as well as 80% of the group revenues. Telefónica is simply doubling down on the markets where it has seen the most joy in recent years.

The creation of two additional business units also create new opportunities to drive revenues for multinational partners. For Telefónica Tech, the team will target three segments which are aggressively expanding today, and the infrastructure business unit has been an ambition of Telefónica for months. These are country-agnostic business units, leveraging the global expanse of Telefónica’s footprint; it is a very sensible and reasonable approach.

Moving across to the LATAM business unit, it does appear the business is attempting to isolate a region which has proven difficult in recent years.

“Our operations in Latin America were the growth engine of the company until a few years ago,” said Álvarez-Pallete.

“However, the particular conditions in these markets have had an impact on the business, reducing its contribution in recent years for different reasons and despite the enormous efforts of our local teams, which have always shown a strong commitment.”

This is not to say there is not money to be made in LATAM, or that the creation of a separate business unit should be viewed as a negative. The Latin American nations are a completely different beast, with very complex challenges. Perhaps removing Brazil, this region could not be more difficult from Europe. Once again, it is a perfectly reasonable approach to separate the business, achieve scale economics through combining the individual countries under one structure and appointing a specific management team with its own strategy.

Although Telefónica is not necessarily a business which is in trouble, the billions of debt which it is working hard to clear creates a slight position of discomfort. This is a business which needs to do something different, as well as prioritise investment in stable markets where threats are becoming increasingly apparent. The UK and Germany are markets where it could find itself in a bit of bother unless rivals aggressive moves are countered. This does look like an effective and reasonable approach to meet the challenges.

Loon claims second customer win in Amazon rainforest

Google-owned balloon connectivity firm Loon has officially signed its second customer, Internet para Todos Perú, to deliver the internet to remote regions in the Peruvian Amazon.

The agreement between Loon and Internet para Todos Perú will kick-off in 2020, providing connectivity to 200,000 people in the Peruvian Amazon. This is the second commercial agreement signed by Loon, and the first sustained, non-emergency use of the technology in South America.

Owned by Telefónica, Facebook, IDB Invest and CAF, Internet para Todos Perú is an open access wholesale rural mobile infrastructure operator, aiming to deliver the internet to regions which are considered commercially unattractive. Although Internet para Todos Perú is telco neutral, this agreement with Loon will be to deliver connectivity to Telefonica’s customers in the first instance.

“Internet para Todos was born with the purpose of connecting millions of Latin Americans, including 6 million Peruvians without adequate access to mobile internet,” said Teresa Gomes, CEO of Internet para Todos Perú.

“This challenge involves reaching difficult access areas with innovative and sustainable technologies that allow us to overcome geographical, technological and economic complexities.”

For those not familiar with Loon, the business is a graduate of Google’s Moonshot Labs. A seemingly ridiculous idea to use hot air balloons to float radio technology above the worlds’ most difficult to reach regions. These are the areas where laying traditional connectivity infrastructure is not a viable option, ROI would be far too low, so the absurd ideas are considered.

The balloons, floating 20km above sea level, will house 4G radio equipment. Signals from ground infrastructure will be distributed between the network of floating cell sites before relaying to 4G devices on the ground.

Discussions with Telefonica have been on-going for months, though Loon seemingly proved its worth by answering calls from the Peruvian Government and Telefonica following a magnitude 8.0 earthquake in May. The team had already been in the process of laying infrastructure in the region, and it took less than 48 hours for the balloons to arrive and start delivering 4G to users below.

While permanent contracts with telcos will of course be more lucrative to the Loon business, assistance in disaster situations is another element. In various regions throughout the world, the Loon team will be laying infrastructure for the worst-case scenario, though it does give the team a head-start when negotiating with the local telcos.

This is not the first time Loon has reacted to natural disasters in the region. In 2017, Loon worked with Telefonica to support efforts in flooded regions in Peru, and a few months later, AT&T and T-Mobile US after Hurricane Maria impacted Puerto Rico. In the aftermath of such natural disasters, Loon’s assistance was critical to replace damaged communications infrastructure, but the business does have to be more than an emergency services tool.

This agreement is a positive step forward, but it is only the second. At some point, the Loon team will have to start making news headlines more often. There is a huge amount of potential for Loon, though at the moment it doesn’t appear to be more than a quirky idea.

Telekom Kenya and Telefonica clearly see the benefits of the technology, but there are hundreds of telcos across the world who fit the customer profile. The vast majority will be in the larger developing markets, where low ARPU inhibits the deployment of traditional connectivity infrastructure, but there are also niches in the developed markets. Australia or the US for example, where vast landscapes and remote communities present the same ROI challenges.

Telefonica is an excellent customer win, this is one of the largest telcos worldwide after all, and there will be plenty of opportunity to cross-sell to other national business units. However, at some point Loon will have to prove it is more than an interesting idea and announce more contracts.

Germany follows the UK on coverage collaboration

Deutsche Telekom will be joining forces with the German bits of Telefónica and Vodafone so they don’t duplicate each other’s efforts in remote locations.

The move seems identical to the initiative announced by UK MNOs a few weeks ago, which resulted in Ofcom removing coverage obligations from the next tranche of low-frequency spectrum to be made available. Presumably the German regulator has indicated it would be in their best interests for the German MNOs to follow suit, although in this case it’s more about satisfying existing coverage oblgations.

Right now, however, this is just a statement of intent rather than a hard pact. “The three telecommunications providers plan to coordinate the set-up and operation of up to 6,000 new cell sites and have signed a letter of intent to this effect,” says the announcement. “1&1 Drillisch AG has been invited to participate in this network expansion collaboration. A prerequisite for joining the collaboration is that the operator must be willing to take on an equal share of the expansion projects as the other parties.”

This seems a bit harsh on Drillisch as it’s currently an MNVO using the Telefónica and Vodafone networks and has far fewer subscribers than any of the MNOs. “The plan proposes that each company participating in the collaboration should set up an equal number of new sites which can then be used by the collaboration partners and fitted with their own antennas and the appropriate network technology as required,” added the announcement.

“The planned collaboration is a milestone for network expansion in Germany,” said Telekom Deutschland’s Managing Director Dirk Wössner. “Our common goal is to eliminate coverage gaps in the mobile network as soon as possible. Sharing infrastructure is nothing new for us. Sharing it at this scale, however, is a major step in the right direction. After all, high-speed internet and excellent voice quality on road, rail and water are vital for an industrial country like Germany that relies on mobile communications.”

“Mobile communications will be the most important technology in the coming decade. And we are pooling our resources to put Germany in an ideal position,” said Markus Haas, CEO of Telefónica Deutschland. “This collaboration is an outstanding example of intelligent cooperation towards taking the next logical step. We must join forces if we are to consolidate Germany’s position as a leading business location that is ready to take on future challenges. Together, we will take digital transformation in Germany to the next level.”

“Today, we are forging an alliance to combat dead spots and increase mobile communications coverage even in areas where it is not profitable,” said Vodafone Deutschland CEO Hannes Ametsreiter. “In future, hundreds of thousands will benefit from this – people in small rural communities, people on roads, people traveling by train. Together, we operators will construct and share a common infrastructure in dead spots – and of course continue to be rivals in a competitive infrastructure market in the rest of the country. This is good for the network, good for customers and good for Germany’s digital future.”

This looks like a good solution for the MNOs so long as they can agree on an equal share of the work. Drillisch announced it wanted to get into the MNO business buy winning some 5G spectrum in the most recent auction, leading to considerable sulking from the incumbents about the cost of it all. It looks like they’re going to make the newcomer pay to get into their little coverage club.

Vivo introduces FTTH franchising model in Brazil

Telefonica’s Brazilian brands Vivo and Terra have launched a franchise model for its fibre rollout plans seemingly to ease the financial demands of the digital economy.

Working with local partners, the initiative will focus on cities with populations between 20,000 and 50,000. The aim will be to add an additional 1 million households to the fibre footprint by 2021, taking the total north of 15 million.

“Population demand is for the internet, and Vivo is the only company in Latin America to invest heavily in a fiber project, promoting a unique experience for its customers,” said Fernando Duschitz, Senior Franchise Manager at Vivo.

“This new business model from Vivo is an opportunity for companies and investors who want to enter this market, as well as for those already acting as providers, to benefit from the strength of the Terra brand, with Telefonica scale, and Vivo quality, as well as of all our experience in expanding fiber, present today in 154 cities across the country.”

Just to paint a bit of context to the situation, Telefonica is a company which is not in the most comfortable position when it comes to debt. While debt had been reduced to €41.785 billion, this is still seemed too steep for investors. Various other strategies have been introduced, such as a new business model for the tower division, though this franchise idea also aids the pursuit of a future-proofed network.

This is the conundrum being faced by Telefonica. The management team does need to reduce debt, though it also needs to find investment for fibre and 5G deployments. Without these investments, rivals would gain the upper hand and potentially erode profits as customers elect for better services. Franchising certain localities in Brazil is a compromise, lessening the financial impact to fuel the mission for future-proofed networks, but weakening control.

Franchisees will be responsible for developing all necessary network infrastructure, as well as managing the operation, including sales, service and installation. On the other side of the deal, Vivo will offer agile processes, managerial and technical training, access to tiered qualified suppliers, unique central call centre, network topology ensuring stability and scalability.

Although not many telcos are facing the same debt challenges as Telefonica, finding cash to fuel network upgrades and deployment is an industry-wide conundrum. Compromises will need to be made, and this is certainly an interesting idea.