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The perspective of an operator

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Presentation on theme: "The perspective of an operator"— Presentation transcript:

1 The perspective of an operator
María José Aguado Gómez Shangai, November 2nd 1

2 Index 1 Telefónica The environment for Digital Convergence Telefónica España: The best starting position Telefónica España: An ambitious strategy that will extend our leadership 2 3 4

3 Telefónica

4 Telefonica has experienced a deep transformation over the last twenty years
1984 2006 X 21 Clients 8.9 million subscribers 203,2 million subscribers(*) X 20 Footprint Spain with a population of 38 million Worldwide Latin America, Europe, Africa & Asia > market potential of 760 million Services Diversified and large offering of products & services Fixed line voice and other basic services @ x x3 Human Resources More than 230,000 employees 67,000 employees Revenues: 2.3 B€ Assets: 10.3 B€ Mkt. Cap: 1.6 B€ X22 x10 x52 Financial Data Revenues: 52.9 Bn€ (*) Assets: Bn€ (**) Mkt Cap: 83,9** Bn€ (*) Note: Financial data as of the end of 1984 Note: Financial data as of * Dic 2006 ** Jun 2006

5 The environment for Digital Convergence
Index 1 Telefónica The environment for Digital Convergence Telefónica España: The best starting position Telefónica España: An ambitious strategy that will extend our leadership 2 3 4 5

6 All the agents of the sector are affected by these tendencies
The environment is characterized by fast change and transformation Globalization Convergence among sectors ”Coopetition” Competence and Cooperation All the agents of the sector are affected by these tendencies Breaking and dynamic Innovation Growing Efficiency The Consumer is “the king”

7 The competence is being consolidated around global players
Telecommunication Operators The competence is being consolidated around global players Number of players Infrastructure providers Mobile handset providers Latin-American market 62% 2 55% of the market 76% of the market 4 North America market 54% 4 2 West Europe market 60% 4 Source : Bloomberg

8 The convergence is a progressive tendency
All the services at a unique mobile handset Management of all the communication and entertainment services Integrated Mobile Handsets Residential Gateway Convergence Dual Handsets Content Ubiquity Unique handset for mobile voice (GSM) and fixed voice (WiFi) TV at home, at the PC and at the mobile Instant Messaging F-M Personal TV On-line communications at the PC and at the mobile Entertainment, information and communication services at the TV

9 A New Global Digital World has emerged
0.4 (6 Inv Conf) V33 (6 Inv Conf) V30 A New Global Digital World has emerged Service providers Customers Devices Network Digital services and content Bandwidth 2001 2006 x40 Broadband users x13 Mobile 6,400 m MMS sent per year 65 m online community members 513 m mobile phones Telecom operators PC IP Digital Network Broadband Access F+M Internet players 193 m PC’s Multimedia equipment 1.5 m IPTV users 36 m mobile games downloads 72 m blog users 24 m households with game consoles Other service providers Traffic 2001 2006 x25 44% households with digital cameras >90% New consumer trends IP traffic: New business models Hyper connectivity Proliferation Bandwidth and volume Note: Data for 2006 in Telefónica markets Sources: Pyramid, Euromonitor, Yankee, Ovum, WCIS, Comscore and internal estimates 9 9

10 The role of Mobile Digital Convergence
(6 Inv Conf) V33 The role of Mobile Digital Convergence Extracting value of industry transformation GLOBAL GOALS Sources of growth Integrated delivery Benefits of scale Mobility and Broadband are driving a New Digital World around the customer providing plenty of opportunities We have aligned our organisation to capture these opportunities 10

11 Sources of growth 35% Mobile Fixed Voice
(6 Inv Conf) V33 (6 Inv Conf) V30 Sources of growth Mobile Fixed > 135%* in Spain, UK and Germany Mobile access/population Fixed access/households Voice (Penetration) Mobile voice will continue growing +23 p.p. -3 p.p. 94% 71% 64% 61% Broadband >70% in Spain, UK and Germany >50% in Spain, UK and Germany Broadband will be the dominant access type 3G handsets / customer base Fixed BB/households Penetration x 8 x 2 35% 35% 19% 4% Bandwidth (Mbps) Higher bandwidth x 10 x 10 ~14 100 1.4 10 Mobile music audio users IPTV customers Demand explosion for digital services and content Digital services (Millions) x 7 x 6 ~7 ~9 1.5 1.1 2006 2010E 2006 2010E * Including M2M Note: Data in Telefónica markets Sources: Pyramid, Yankee, and internal estimates 11 11

12 55 (6 Inv Conf) V30 (6 Inv Conf) V33 Integrated delivery Integrated delivery will facilitate a set of opportunities... ...and technology will enable it To address customer needs Access to any type of service from any type of device in a seamless way Attractive, easy and user-friendly customer experience Bundles* Telefónica’s markets Millions “All IP” networks and platforms 2006 2010E x 2 ~55 26 To achieve operational excellence Content Digitalisation Efficiency improvement OpEx and CapEx reduction Better use of resources Better quality Key differentiation factor Sustainability of price premium *Includes 2P and 3P bundles 12 12

13 The New Global Digital World ... ...provides new opportunities
55 (6 Inv Conf) V30 (6 Inv Conf) V33 Benefits of scale The New Global Digital World ... ...provides new opportunities Customer needs are increasingly more global Global procurement Common development of Product & Services Common operations Lower OpEx and CapEx Suppliers are more global Global scale Faster time-to market Knowledge sharing Technology is more global Faster deployment of services Best practices transferred across countries 13 13

14 The environment for Digital Convergence
Index 1 Telefónica The environment for Digital Convergence Telefónica España: The best starting position Telefónica España: An ambitious strategy that will extend our leadership 2 3 4 14

15 Spain will maintain a positive macro environment
18.1 Spain will maintain a positive macro environment Positive macro environment… … and market trends CAGR 06-10E Spain Euro zone Increasing demand for telecommunication services New users Room to increase adoption rates Business opportunity beyond connectivity GDP: +€119bn Private consumption: +€66bn Population: +1.5m people +2.9% +2.2% +2.8% +1.8% +0.9% +0.2% Population: 45 MM Source: “Consensus Forecast” for GDP and private consumption; INE and Eurostat for population

16 We are in the best starting position to capture this growth
0.9 We are in the best starting position to capture this growth THE BROADEST AND DEEPEST RELATIONSHIPS THE MOST SATISFIED CUSTOMERS THE STRONGEST COMMERCIAL REACH A REFERENCE IN EFFICIENCY

17 The broadest and deepest customer relationships
46.20 The broadest and deepest customer relationships The broadest … > 45 million accesses >35% exclusivity in Households >50% exclusivity in SMEs and SOHO >70% exclusivity in Corporate … the deepest … Market share (FY2006) Fixed Broadband Mobile 59% … with the best customers 56% 50% 46% Share of revenues Share of accesses Share of revenues Share of accesses Source: CMT, Telefónica, companies press releases 17

18 We have the most satisfied customers
6.27 We have the most satisfied customers Wireline Global satisfaction index (Q2 07) Residential; TV and Broadband customers 6.99 6.85 “Best ISP” The strength of our networks and operations allow us to offer the best customer experience Wireless Global satisfaction index (Q2 07) 6.71 6.49 6.21 Lowest churn Source: Asociación Internautas feb-07; Telefónica; CFI 18

19 The strongest commercial reach with outstanding growth opportunities
20 The strongest commercial reach with outstanding growth opportunities >7,300 points of sale … >4 million customers/month … more than twice the number of exclusive points than any other competitor ≈2,600 sales force for Corporate and SMEs … >75,000 interactions/month ≈10,000 call center positions … 13.5 million contacts/month Online channels … >15 million visits/month

20 We are a reference in efficiency
305 We are a reference in efficiency Employees (wireline) dec-06 25% reduction in wireline business workforce in Dec.02-Dec.06: Redundancy plan (ERE) Application of “lean operations” to all business processes 99,902 86,315 64,109 in 1997 82,000 55,705 32,397 Increase in Accesses per Employee (wireline) (Dec.07E/Dec.02) +70% +40% Accesses/equivalent employee* Accesses/employee Source: ML European Broadband Matrix Q2 07, Telefónica. * Includes own workforce and outsourced employees

21 The environment for Digital Convergence
Index 1 Telefónica The environment for Digital Convergence Telefónica España: The best starting position Telefónica España: An ambitious strategy that will extend our leadership 2 3 4 21

22 Our winning mindset is our key value driver
Lead the mobile space Controlled churn More customers More revenue/ customer REVENUE GROWTH Lead the broadband business Lead the growth in entertainment Lead the Corporate business

23 We will lead the rapid growth of the mobile data business
7.0 We will lead the rapid growth of the mobile data business Strong data adoption and usage … Mobile BB/laptops (market) >70% 20% Data ARPU /ARPU dec-06 dec-10E New services: Applications on the move Access to leading services from mobile Speed and ease of use 20%-25% 14% 80% 44% 3G roll-out 2006 2010E 80% population coverage with HSDPA by 2010E … supported by commercially oriented roll-out of 3G networks Non P2P SMS data revenue/data revenue 3G handsets/customer base >70% Progressive upgrade of handset base 5% 9% dec-06 jun-07 dec-10E 23

24 We will keep enhancing our services
1.000 We will keep enhancing our services Enhanced messaging (SMS 2.0) Fulfilling group communication and mobile-PC communication needs P2P communications Easing browsing system New partnerships (GYM) Open access navigation Extending mail services to residential business Enhanced handset navigation capabilities Browsing & Connectivity Strengthening content offer based on communities Enhanced TV offering Multimedia Advertising: 1st Spanish mobile portal to include advertising M- commerce Betting … New businesses 24

25 We will lead the mobile voice business
23 We will lead the mobile voice business More customers Mobile penetration (market) Mobile customers Millions 135% CAGR 06-10E 104% 107% 120% Including M2M 105% +5%/+6% 103% 120% 21.5 Proactive customer acquisition focused on value Maintain a “Best in class” churn rate dec-06 jun-07 dec-10E dec-06 dec-10E 1% 10-14% %M2M Outgoing traffic Bn minutes More voice usage Expanding MoU through innovative pricing schemes leveraging community effect >+8% Outgoing MOU (Q2 07/Q2 06) 27.7 +3.5% +1.8% 2006 2010E Reported Excluding M2M 25

26 Our actions are yielding good results
1.000 MOBILE SPACE Our actions are yielding good results Mobile Data Mobile voice Outgoing ARPU Data Growth Postpaid net adds. Jun.07/Jun.06. Thousands 1,526 8.6% 408 1,356 390 349 309 1.5% 472 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 43 157 Increase in data usage in Q2 07: X7 year-on–year x2 quarter–on-quarter Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Last 12M Source: Telefónica, companies’ press releases 26

27 New services and enhanced functionalities in Q4 07
1.000 New services and enhanced functionalities in Q4 07 for the mass market Blackberry service for 5€/month “Mail Express” for 2€/month 1st player in the world to launch: Smartphone Blackberry 8120: convergence in access (WiFi/GPRS) and services (multimedia applications and e- mail) BlackBerry Unite: downloads of content from a BlackBerry smartphone to a PC More functionalities Sony-Vaio laptops with embedded exclusive 3.5G modules 1st player in the world to launch Novaltel’s HSUPA modem New devices for laptops connectivity From 26 to 42 TV channels Agreements with key players: FOX, CNN, Paramount Comedy, Cartoon Networks… Enhanced TV offering 27

28 Increased demand for broadband
16,000 Increased demand for broadband Average bandwidth 2010E: 10x vs. 2006 Mobile 2 Mbps 7 Mbps IP Telephony 0.2 Mbps 0.2 Mbps BB Internet 5 Mbps 10 Mbps 1 Mbps Videotelephony 1 Mbps Peer to Peer 10 Mbps 20 Mbps Videoconference 4 Mbps 4 Mbps SDTV 0.32 Mbps 4 Mbps Online Games 0.5 Mbps 1 Mbps HDTV 0.5 Mbps 12 Mbps 3DTV 0.7 Mbps 16 Mbps Total communications traffic in Spain* Thousands Terabytes x 9 18,000 x 7 2,200 300 2000 2006 2010E * Telefónica estimates 28

29 We will lead the massive adoption of broadband connectivity services
48.2 We will lead the massive adoption of broadband connectivity services Massive use of fixed Broadband BB Market Million accesses BB customers Millions 6.7 3.7 dec-06 dec-10E dec-06 dec-10E From 42% to 75% BB penetration in households with fixed access Retail BB Market share 56% 53%-57% Market-driven fiber deployment Wireline BB Coverage % loops Selective deployment by zone Sustaining BB revenue per access ~€1bn capex E Enhanced speeds Higher contribution from VAS (Imagenio, security, maintenance…): ≈30% of BB ARPU in 2010E vs. 16% in 2006 >80 54 >40 25 dec-06 dec-10E dec-06 dec-10E dec-06 dec-10E 10 Mb 30 Mb 100 Mb 29

30 Entertainment: A new digital TV in Q4 07
Enhanced functionalities and new content PAST TV Access to most of the content of the 4 leading TV channels in Spain broadcasted during the last week SHIFT TV Capability to pause live TV channels Rewind TV Instant recorder Personal recorder PVR From 120 to 160 channels New thematic packages (immigrants, children …) Prescreening of series Soccer summaries New theatrical releases Enriched content 30

31 Entertainment: the consumer as the decision maker
Entertainment value proposition Today Q4 07 Q3 08E To be developed Real video on demand Most flexible Pay TV offer in the market EPG T- commerce Past TV Shift TV PVR: Rewind TV Instant recorder Personal recorder New content HDTV Multiroom Advanced EPG Advanced PVR Photo and video sharing Interactive advertising Imagenio on the move Advanced T- commerce Other advanced functionalities 31

32 This will support the growth of the Pay TV market
4.8 This will support the growth of the Pay TV market We are driving the growth of Pay TV market… …and new functionalities will boost the growth Pay TV Market growth Imagenio customers Millions Total market >20% Additional growth potential leveraging new functionalities Areas with Imagenio coverage >8% 1.0 0.4 Jun.07/Jun.06 dec-06 dec-10E Commercialization in bundles Continuous learning to improve customer experience 32

33 We are working closer with key partners
1 (6 Inv Conf) V33 (6 Inv Conf) V30 We are working closer with key partners Mobile PC TV Services and Content (Cross-platform approach) Partnerships with third parties to develop and offer innovative services and applications Partnerships to acquire and distribute content Aggregation and distribution of content Modularity, flexibility and advanced functionalities as main differentiation factors User Generated Content offerings (e.g. web 2.0.) leveraging Telefónica’s own platforms and 3rd party products 33 33

34 Digital services and content will further contribute to growth
1 (6 Inv Conf) V30 (6 Inv Conf) V33 Digital services and content will further contribute to growth Mobile PC TV Develop new services with open garden approach: Information (e.g. search) Communication (e.g Instant Messaging) Entertainment (e.g. Music, TV) Stimulate Internet usage, monetising it through data traffic, advertising and pay-per-use Foster friendly data-enabled handsets Attract online audience and monetize it, mainly through advertising Internet TV + Music (Terra TV, Pixbox) Communities (e.g. “Espacio Terra”) User Generated Content (e.g. “Tú Reportero”) “Personal TV” based on IPTV Satellite to reduce time-to-market Cable only to leverage existing assets (e.g. Perú) Mobile data active users* Millions Terra unique users Millions Pay TV customers Millions x 4 x 2 x 5 ~70 ~5 ~90 17 44 1 2006 2010E 2006 2010E 2006 2010E * Non SMS data active users for the last 3 months 34 34

35 … and it will radically transform our revenue profile
11,6% … and it will radically transform our revenue profile Telefónica España revenue structure CAGR 06-10E +2.0%/+3.5% €19.8bn €15.7bn Capturing the full potential of BB and wireless data 30%-32% Fixed and mobile data Mobile and fixed voice and access Wholesale and other* 20% 11% 69% 62% 52%-55% 19% 18% 14%-16% FY2002 FY2006 FY2010E * Includes Wholesale, Interconnection, consolidation adjustments and others (Group companies, handsets, others) 35

36 …while maintaining our commercial focus
We are leveraging integration to better serve our customers and to be more efficient… Full integration of key functions: single management team Full integration of IT and operations to capture synergies and develop common platforms under a new operating model …while maintaining our commercial focus Full integration in Corporate business Integrated stores In Residential and SMEs, convergent market research, cross selling and convergent P&S 36

37 Extracting value of industry transformation
(6 Inv Conf) V33 Content Extracting value of industry transformation GLOBAL GOALS Sources of growth Integrated delivery Benefits of scale Through this triple effort we will enhance our leadership and competitive position, providing superior growth and returns 37

38 > 290 m > 5 p.p. ~€7.5 bn + + ~50 m ~20 m In summary… 1.000
(6 Inv Conf) V33 (6 Inv Conf) V30 In summary… Sources of growth > 290 m Industry transformation is creating the New Global Digital World Accesses in 2010E ~50 m 3G users ~20 m Fixed BB accesses + Integrated delivery (OpEx+CapEx)/ revenues reduction E > 5 p.p. + Benefits of scale ~€7.5 bn Synergies for the E period 38 38

39 Telefónica: a unique incumbent
ON MARKET LEADERSHIP ON GROWTH WITH A WINNING MINDSET

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