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Summary

Telefonica's new CEO, Jose Maria Alvarez-Pallete Lopez, has set out his new growth strategy. The strategy is remarkable, first for its approach to monetizing consumer data, and second, given the near absence of TV and digital services that have been characteristic of other service providers' strategies of late, such as AT&T's proposed $85.4bn acquisition of Time Warner and BT's £738m sports rights deal. Telefonica is not dropping content from its growth strategy, but it is no longer front and center of its new horizon, making what we heard from Alvarez-Pallete feel like the launch of a new phase of growth for the business. Content is business as usual, while Alvarez-Pallete is transforming Telefonica into a platform company.

Consumer data monetization

The network-as-a-platform strategy is founded in the notion that enterprises are prepared to pay for customer data to produce personalized, real-time advertising campaigns, video content recommendations, and other digital services, notably those that are driven by the Internet of Things (IoT). Telefonica sees itself adopting a new role in this environment, which is to sell its consumers' data generated from billions of events that travel over its network every day. For the moment, the strategy includes only network information, but it shortly expects to add device data through an initiative called Smartphone as a Channel.

Such monetization of consumer data is not new – we've seen a number of digital service providers make steps in this direction, including Verizon's ad-funded media platform go90 and AT&T AdWorks, which delivers targeted advertising. But Telefonica's approach is different in that its central premise is consumers will "take back control" of their digital lives. Asking of the industry, "Who owns what?" when it comes to personal data, Telefonica will play the honest broker role between the consumer and the enterprise. How consumers will be given control was not revealed, but the aim is to offer them a subtler, graded set of options beyond the "opt in" and "opt out" that are available today. This new arrangement may also offer some form of financial benefit or reward for the consumer. Alvarez-Pallete also opened Telefonica's door to working more closely with Internet players such as Amazon, Facebook, and Google.

So there is more to be revealed about this new strategy, including the degree of control that will be given to the consumer and the precise commercial model. We suspect that Alvarez-Pallete will reveal more at his keynote at MWC (Mobile World Congress) in February, including potentially by then a new way of working with an Internet player.

Telefonica also launched a big data unit, LUCA. This B2B business is designed to help its corporate clients build new big data capabilities and transform how their clients deliver digital services driven by consumer data. The LUCA portfolio includes Smart Steps, which uses anonymized mobile network data to help advertisers target their campaigns.

Telefonica is therefore clearly focusing on helping enterprises transform how they deliver services through applying real-time data analytics. This strategy is right on the mark, especially because it has generally been overlooked by managed services businesses, which continue to look to sell IoT technologies in a rather connectivity-focused fashion.

Given the increasing press coverage about Internet companies' use of personal data, there is steadily growing interest among users in being able to block Internet companies from tracking their online behavior – especially when carrying out Internet searches or social networking. So we think the "consumer power" message from Telefonica is well timed, and its transparent approach will resonate well with consumers.

Ovum's research has found that a significant proportion of Internet users (66%) are at least a little concerned about the privacy of their online communications, with 20% being significantly concerned. When it comes to devices and applications tracking the user's location, 51% of respondents stated that they were concerned about applications tracking their whereabouts and had reservations about making this information publicly available. More than 50% of respondents would be interested in using a "do not track" option if it were made available for all of their Internet usage, and approximately 20% would be interested in such a feature while using social networking sites or search engines. This is a pressing issue for the consumer today and one we think will become increasingly important in supplier selection.

That is because there has been a steady deterioration in consumer trust that has come on the back of various failed consumer data-monetization initiatives. For example, Verizon was fined $1.35m and required to change from an opt-out policy to a more explicit opt-in policy in sharing its consumer data. In the UK, TalkTalk was fined £400,000 for basic security failings that allowed a cyber-attacker to access 156,959 customer records.

The strategy may also in time be seen as a major turning point at which traditional telecoms operators became more supportive of the Internet giants' advertising business models, rather than seeking to block the "free ride" these tech companies are getting "over the top" of their networks.

The key to success here is not so much the technology and commercial innovation that Telefonica may apply to its customers' data, but whether its data will reveal deeper, broader, or more timely insights that will command a premium in the market.

Overall, Telefonica is much clearer about success and perhaps most importantly the role and method of monetization of its platform. We think it has the most rounded strategy yet as to how network owners can monetize customer data. We look forward to Telefonica unveiling more of its approach at MWC.

Appendix

Further reading

Ad-Blocking Forecast Report: 2015–20, ME0002-000671 (June 2016)

Ad-Blocking Forecast: 2015–20, ME0002-000676 (June 2016)

Telcos in Mobile Advertising: Operator-initiated Ad-blocking, TE0003-000879 (October 2015)

Verizon go90, TE0001-001029 (August 2016)

Ad-Blocking: How to Address the Threat to Revenues, ME0002-000606 (September 2015)

"The ePrivacy reform is likely to take account of the role of OTT providers," TE0007-001018 (April 2016)

"Data privacy and protection – barriers to telcos deriving value from customer data," IT0012-000093 (March 2015)

Big Data Analytics and the Telco: How Telcos Can Monetize Customer Data, TE010-000312 (May 2013)

Author

Richard Mahony, Research Director, Service Provider

richard.mahony@ovum.com

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