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Critical Challenges for Mobile Digital Convergence María José Aguado Gómez Shangai, November 2nd The perspective of an operator.

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Presentation on theme: "Critical Challenges for Mobile Digital Convergence María José Aguado Gómez Shangai, November 2nd The perspective of an operator."— Presentation transcript:

1 Critical Challenges for Mobile Digital Convergence María José Aguado Gómez Shangai, November 2nd The perspective of an operator

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

3 3 Telefónica

4 4 Telefonica has experienced a deep transformation over the last twenty years Clients 8.9 million subscribers 203,2 million subscribers(*) 1984 X 21 Financial Data Revenues: 2.3 B Assets: 10.3 B Mkt. Cap: 1.6 B Revenues: 52.9 Bn (*) Assets: Bn (**) Mkt Cap: 83,9** Bn (*) X2 2 x10 x52 Spain with a population of 38 million Worldwide Latin America, Europe, Africa & Asia > market potential of 760 million Footprint X 20 Human Resources 67,000 employees More than 230,000 employees x3 Note: Financial data as ofNote: Financial data as of the end of 1984 Services Diversified and large offering of products & services Fixed line voice and other basic x 2006 * Dic 2006 ** Jun 2006

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

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

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

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

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

10 10 The role of Mobile Digital Convergence 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 Integrated delivery Benefits of scale Sources of growth Extracting value of industry transformation GLOBAL GOALS

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

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

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

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

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

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

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

18 18 We have the most satisfied customers Wirelin e Wireles s The strength of our networks and operations allow us to offer the best customer experience Global satisfaction index (Q2 07) Residential; TV and Broadband customers Global satisfaction index (Q2 07) Lowest churn Best ISP Source: Asociación Internautas feb-07; Telefónica; CFI

19 19 The strongest commercial reach with outstanding growth opportunities 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 >7,300 points of sale … >4 million customers/month … more than twice the number of exclusive points than any other competitor … >4 million customers/month … more than twice the number of exclusive points than any other competitor

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

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

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

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

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

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

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

27 27 New services and enhanced functionalities in Q4 07 New devices for laptops connectivit y 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 for the mass market More functionalitie s Enhanced TV offering From 26 to 42 TV channels Agreements with key players: FOX, CNN, Paramount Comedy, Cartoon Networks… Sony-Vaio laptops with embedded exclusive 3.5G modules 1 st player in the world to launch Novaltels HSUPA modem

28 28 Increased demand for broadband 2010E x 7 x 9 Average bandwidth 2010E: 10x vs SDTV 0.32 Mbps4 Mbps Online Games 0.5 Mbps1 Mbps BB Internet 5 Mbps 10 Mbps 0.2 Mbps IP Telephony Peer to Peer 10 Mbps20 Mbps HDTV 0.5 Mbps 12 Mbps 3DTV 16 Mbps 0.7 Mbps Videotelephony 1 Mbps Videoconference 4 Mbps Mobile 2 Mbps 7 Mbps 4 Mbps Total communications traffic in Spain* Thousands Terabytes 18,000 2, * Telefónica estimates

29 29 We will lead the massive adoption of broadband connectivity services Massive use of fixed Broadband Market- driven fiber deployment BB customers Millions 3.7 dec dec-10E From 42% to 75% BB penetration in households with fixed access Retail BB Market share 56% 53%-57% Sustaining BB revenue per access Wireline BB Coverage % loops 10 Mb30 Mb100 Mb 6.7 dec dec-10E BB Market Million accesses Selective deployment by zone ~1bn capex E ~1bn capex E 0 0 >40 >80 54 Enhanced speeds Higher contribution from VAS (Imagenio, security, maintenance…): 30% of BB ARPU in 2010E vs. 16% in dec-06dec-10E dec-06dec-10Edec-06 dec-10E

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

31 31 Entertainment: the consumer as the decision maker 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 HDTV Multiroom Advanced EPG Advanced PVR Photo and video sharing Interactive advertising Real video on demand Most flexible Pay TV offer in the market EPG T- commerce Real video on demand Most flexible Pay TV offer in the market EPG T- commerce Imagenio on the move Advanced T- commerce Other advanced functionalities Imagenio on the move Advanced T- commerce Other advanced functionalities TodayQ4 07Q3 08E To be developed Entertainment value proposition

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

33 33 We are working closer with key partners TV 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 Telefónicas own platforms and 3rd party products Services and Content (Cross-platform approach) PCMobile

34 34 Digital services and content will further contribute to growth Personal TV based on IPTV Satellite to reduce time-to- market Cable only to leverage existing assets (e.g. Perú) 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) Terra unique users Millions E x 2 * Non SMS data active users for the last 3 months PC ~90 44 Mobile data active users* Millions 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 2006 ~ E x 4 Mobile 17 Pay TV customers Millions 2006 ~5 2010E x 5 1 TV

35 35 … and it will radically transform our revenue profile Telefónica España revenue structure * Includes Wholesale, Interconnection, consolidation adjustments and others (Group companies, handsets, others) Capturing the full potential of BB and wireless data +2.0%/+3.5% 62% 18% 19.8bn FY %-32% 52%-55% 14%-16% FY2010EFY % 11% 69% 19% 15.7bn Fixed and mobile data Mobile and fixed voice and access Wholesale and other* CAGR 06-10E

36 36 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 Full integration in Corporate business In Residential and SMEs, convergent market research, cross selling and convergent P&S …while maintaining our commercial focus Integrated stores

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

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

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

40 40


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