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WIKI ANALYSIS
Telefonica, based in Madrid, Spain, is the third largest mobile telephone company in the world by customer accesses, with 182 million[1] subscriber lines to its services, and has coverage in Europe and thirteen Latin American countries. In addition, the company offers broadband internet access and television service. [2]
Telefonica faces increasing obstacles to growth in Spain, long considered its dominant market. Spain has a wireless penetration rate of 111%, which is the number of wireless subscriptions divided by population.[3] In addition, Telefonica has faced increasing competition as a result of France Telecom S.A. (FTE) acquiring Deutsche Telekom AG (DT)'s internet business, as well as the largest Spanish cable TV operator pushing its own internet and phone services. [1].
The company has rights to provide coverage for the IPhone in 16 countries, which have contributed to sales growth and offset decreases in Average Revenue Per User (ARPU), since iPhone contracts typically have 30% higher ARPU than other phones. [3]
Business Overview
Telefonica places a large emphasis on innovation and research and development. The company has launched Open Movilforum, an open source platform that allows developers to access services on Telefonica's network and incorporate them into their applications, which management hopes will lower churn by keeping customers from switching to other carriers.[4] The company has invested in Amobee, a mobile advertising solutions business; GestureTek, a user recognition and interface innovator; and Kyte, a multimedia social networking business. [5]
Business & Financial Metrics[6]
In 2009, TEF incurred a net loss of $3.3 billion on total revenues of $56.7 billion. This represents an 18.2% increase in net loss on a 2.1 decrease in revenues from 2008, when the company lost $2.8 billion on revenues of $57.9 billion.
Services
- Traditional fixed telecommunication services: domestic and international long distance telephone[7]
- Internet and broadband multimedia services: Internet Service Provider (ISP) and cable and satellite television service.[7]
- Data and business-solutions services: Virtual private network (VPN), fiber optics, web hosting, security services.[7]
- Wholesale services for other telecommunication companies: Leasing lines for other telecommunications companies.[7]
- Mobile services: Mobile telephone, data, and Internet[7]
Business Segments[8]
Telefonica has a regional, integrated management model organized around three geographic areas, with each area in charge of the business with its borders.
- Telefonica Espana (34.7% of revenue): From its inception in Spain in 1924 to today, Telefonica receives the largest share of its business in Spain. This segment also includes mobile services in Morocco.
- Telefonica Latinoamerica (40.5% of revenue): Under the names Telefonica and Movistar, this unit provides telecommunications services to thirteen countries in Central and South America: Argentina, Brazil, Chile, Colombia, Ecuador, El Salvador, Guatemala, Mexico, Nicaragua, Panama, Peru, Uruguay and Venezuela. The unit also has satellite operations in Puerto Rico and the US. [9]
- Telefonica O2 Europe (23.8% of revenue): This segment operates in the UK, Germany, Ireland, the Czech Republic, and Slovakia. This unit has a foothold in China and Italy through its partnerships with China Netcom (906-HK) and Telecom Italia S.P.A. (TI).
- Other (0.9% ): Attento provides customer care services to all of Telefonica's customers. t-gestiona provides administrative and administrative support services to the regional business units. Telefonica I+D is the company's research and development subsidiary. [9]
Key Trends & Forces
Increasing competition in Spain
Telefonica historically has been the leading telecommunications company in Spain by customer accesses.[1] However, the wireless penetration rate, which is the total number of wireless subscribers in a country divided by its population, has reached 111% in this country. Such a high penetration rate means the wireless growth outlook is bleak. [3] Competition in Spain has increased as a result of France Telecom S.A. (FTE) acquiring Deutsche Telekom AG (DT)'s internet business and the largest cable TV operator pushing its own internet and phone services. [1] Overall, Spain's Gross Domestic Product is dropping, in part due to the global economic downturn, and the country has cut roaming tariffs, allowing customers of Telefonica's competitors to more easily use their phones in Spain.
Latin America is the main area of growth
By region, Latin America is the firm's primary growth driver, generating revenues almost matching that from Spain. Privatization of telecommunication in most Latin American countries had lead to rapid growth in mobile and long distance telephone services. [10] Throughout Central and South America, Telefonica is using its commercial strength in the mobile business to grow its fixed-line telephone and broadband business. [1] Telefonica is able to capitalize on countries with poor infrastructure by jumping into new technologies such as 3G data networks, VoIP, and WiMAX, saving the cost of infrastructure upgrades.[10]
iPhone distribution rights in 16 countries
Telefonica started selling iPhones in November 2007 as the exclusive dealer and service provider in the UK.[11] Like AT&T in the United States, the exclusive contract has the potential to drive expansion of Telefonica's wireless customer base. The company announced in June 2008 that it will distribute the iPhone in 12 Latin American countries and the Czech Republic, in addition to the UK, Ireland, and Spain. [12] However, Telefonica only has the exclusive right to provide service for the iPhone in the UK, Ireland, and Spain. [13] [14]
Adverse Regulatory Environment in Europe
As a multinational telecommunications company, Telefonica is subject to strict regulation in many of the countries in which it operates. [15] Regulatory policies in many countries favor increased competition in the fixed line, broadband, and mobile service industries. Because Telefonica holds a high market share in many of the countries in which it operates, it is negatively affected by rules designed to foster competition and antitrust action.
Competition
Telefonica is the third largest wireless phone operator in the world behind Vodafone AirTouch Public Limited Company (VOD) and China Mobile (Hong Kong) (CHL).[16] In Latin America, Telefonica competes predominantly with America Movil, S.A.B. de C.V. (AMX) in the mobile phone market.
References
- ↑ 1.0 1.1 1.2 1.3 1.4
- ↑ TEF 2007 Annual Report, page 3
- ↑ 3.0 3.1 3.2
- ↑ TEF 2007 Annual Report, “Innovation,” page 29
- ↑ Current Analysis, "Telefonica Invests in Innovation"
- ↑ TEF 2009 10-K pg. 8
- ↑ 7.0 7.1 7.2 7.3 7.4 TEF 2007 20-F, Item 4 "Information on the Company," page 15
- ↑ 8.0 8.1 TEF 2009 10-K pg. F-29
- ↑ 9.0 9.1 TEF 2007 Annual Report, page 8
- ↑ 10.0 10.1 Reuters Latin America - Telecom Market Regulatory Overview & Infrastructure
- ↑ TEF 2007 Annual Report, “Products and Services,” page 32
- ↑ DMW Daily, "Telefonica to Sell iPhone in 16 Countries; Much of Latin America"
- ↑ Wireless Week, "Telefonica to Distribute iPhone to 16 Countries"
- ↑ Reuters, "UPDATE 1-Telefonica to sell iPhone in Spain this year"
- ↑ TEF 2007 20-F, Item 3 "Key Information," page 6
- ↑ Morningstar analyst report, TEF, 20 August 2008
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