Telefonica Digital sets out key operating targets

Features

Telefonica Digital wants to grow revenues 20% year on year to become a €5 billion business by 2015, and has detailed how much it expects each of its product areas to generate.

CEO Matthew Key said that the unit turned over €2.4 billion in 2011 – representing 20% growth on the like-for-like basis on the operating activities of Telefonica Group over the previous year. (Telefonica Digital was only formed as a separate operating unit nine months ago)

Key said that the company expected its mobile financial services to raise around €1 billion in revenue. Advertising would also generate around a billion. eHealth is expected to raise around half a billion, as are security and cloud services. M2M is targeted to raise €500-800 million, whilst “Subsidiaries” (such as the Terra service in Brazil) is expected to generate €1.1-1.3 billion.

However, although the Group does want to recognise revenues separately, Key said he was unable to share profitability numbers, as cost-allocation within Telefonica Group was so complicated, due to bundled sales and cross-group operational activities.

Direct to bill in 14 markets by end 2012

Telefonica Digital said that it has signed global agreements with Facebook, Google, Microsoft and RIM to enable direct operator billing for digitial items and content in 14 markets before the end of 2012. Already active in Germany, where the operators says it has 400,000 customers active on a monthly basis, direct billing allows users to add the cost of an item to their monthly telephone bill, or deduct the amount from their prepay credit. The operator then reimburses the application developer or content partner in question, keeping a slice for themselves.

Key would not share the commercial terms of its direct billing agreement (ie how much Telefonica keeps for itself) but a spokesperson did say that as the operator had to compete for business with other payment providers such as credit card issuers, so that provides a guideline for the operator share.

Spain will be the first market to have operator billing enabled, Key added. Telefonica intends to set up a “Store within a store” on Windows Phone Marketplace, as well as enabled customers to set up direct to bill as a default payment option. Similarly, the operator will set up a branded Telefonica channel within Google Play to promote its own and other partner apps, as well as offering the direct to bill option on other apps within the store.

Advertising

The operator is going to grow on its UK advertising business, to launch mobile advertising in Latin America. The UK business, which now has 70 people working in it, has achieved a £60 million turnover within two years of operation, Key said. But he added that mobile advertising is still very much an under-exploited opportunity, meaning “the upside is huge”.

“If you look at the amount of money in mobile advertising at the moment, compared to the amount of time people spend on their mobiles, it’s way out of kilter,” Key said.

OTT comms

There was also an update on Tu Me, the operator’s over the top IP comms and messaging app, designed to compete with the likes fo Vider and WhatsApp. Key claimed that there are now 250,000 active Tu Me users, using on average seven Tu Me products (messaging, location, VoIP) per day. The operator’s investment in Jajah was critical to the launch of that service, he said, and would not have been possible without it. Key claimed the service was designed and launched in 100 days, and when there was demand for a Spanish version, that was brought to market in a week.

The company is also going to launch Tu Go before the end of the year – a cloud app that will enable users to have the same phone client across different connected devices (phone, tablet, PC etc). Tu Go will be available in the UK before the end of the year.

Key said that currently Tu Me is about retaining customers who are leaving Telefonica for rival IP comms services. It’s also about bringing customers to Telefonica as an OTT play. For instance, the third largest user base for Tu is in the USA, where Telefonica is a pure OTT provider. A spokesperson said that in time Tu Me could prove to be revenue generating, through partnership and advertising type deals.

Firefox OS

As well as ZTE and TCL (already announced) the operator is in “advanced discussions” with four to five device manufacturers to develop handsets based on the Firefox OS, Key said Telefonica’s aim is to have the devices to market at sub-$100 prices, enabling it to open up markets that are currently excluded from the smartphone experience.. In Latin America, smartphone penetration is only at 9% currently, and within that Telefonica is too reliant on Android, Key said, giving it a potential strategic weakness.

Innovation

Financial service, advertising, M2M, OTT, security and cloud services only represents about 60-70% of the products the operator has in development. Key said the company is holding back several initiatives that are in development, and due for release.

The Wayra initiative has seen the company make an average initial investment of €50,000 in 140 companies. In Bogota and Madrid, the company has re-invested in around 30% of companies after their six month reviews. In all, 10,000 customers have pitched to Wayra in its beauty parades.