At Telefónica's analyst and customer conference, the service provider laid out a bold platform-based vision in which it cast itself as a digital, AI-enabled distributor of best-in-class consumer and business technology. While telcos have struggled recently to recast themselves as digital service providers, it is essential they do so. Telefónica has been engaged in this endeavor since the foundation of Telefónica Digital, its reintegration into the business in 2014. Is it succeeding?
Digitalization can only be measured on results
Telefónica claims to be a leader in digitalization, and while that remains a matter of debate, there are some early signs that it is building billion-euro revenue lines in B2B services that just less than a decade ago barely existed in their current form. The final measure of any digitalization effort is in top-line growth of revenues in new services. Discussions with key Telefónica executives indicate significant progress in three areas, which in sum are now delivering billions to the business:
IoT. Through its Smart Mobility, Smart Retail, Smart Energy, and Smart Cities units, Telefónica has built a significant revenue stream with good representation from its various operating businesses. That said, the majority of IoT revenues are for connectivity only (though most of this is managed), with a minority coming from solutions. This ratio will need to shift.
Security. ElevenPaths, Telefónica's security unit, is generating similar revenues to its IoT services, from a standing start seven years ago. With a new managed detection and response capability and plans to strengthen its security alliance with major global and regional telcos, Telefónica is looking to become a top-tier managed security provider in Europe and Latin America. This is a significant ambition.
Cloud. Having built its own public cloud offer, Telefónica reports that it is seeing success in markets where the cloud giants simply do not play (mostly in Latin America). It also revealed that its hosting and co-location businesses remain strong and in demand and that it has seen early take-up of its managed cloud services offers. The question here is whether its public cloud offer will remain relevant as the giants hover, even in out-of-reach geographies, and whether its cloud management services enable it to win net-new customers as well as meet the demands of existing customers.
Service provider digitalization is in part reinvention. Incumbent telcos have had a century of experience retiring old services and spinning up new ones. What has changed recently is the pace at which this substitution must occur to stay relevant in the market. Growing a billion-euro set of B2B service lines in new domains in less than a decade is a good achievement, but the market will only ever expect more.
"Telefonica Analyst Day 2016: Innovating from the connectivity core," TE0005-000869 (November 2016)
Evan Kirchheimer, Research Director, Enterprise Services