Telefónica Launches Three-Year Strategic Programme, Targets 320 mil. Customers by 2012

Telefónica has launched a new strategic programme, dubbed "Bravo!", for the next three years, report various media. Announced during a two-day summit which gathered together around 1,200 of the group's chief executives in Madrid, Spain, the programme focuses on four key pillars: customer; offering; platform; and culture.

Under the mid-term strategy, Telefónica intends to expand its worldwide customer base of 320 million by the end of 2012, up from the 265 million reported for end-2009 (see World – Spain: 26 February 2010: Telefónica Sees Q4 Revenue Growing by 1.2%, Expects Latin America to Generate Further Growth in 2010), as well as to reach a market share of 30% in all the regions where it operators.

Furthermore, Spanish newspaper Cinco Días quotes Telefónica's executive chairman Cesar Alierta as saying that he believes that in "the medium term" there will be only four top-sized telecoms companies remaining. In Alierta's view, two of these will be Telefónica and China Mobile, with the two other spots of the category being decided between AT&T, Vodafone, Verizon, Deutsche Telekom, and France Telecom. Alierta adds that he is not concerned by possible mergers among the competitors, since such moves would make them "waste" about three years.

Outlook and Implications

• Looking Beyond Traditional Telecoms Services: As expected, the vast majority expected subscription growth is meant to come namely from Telefónica's Latin American operations—in line with the region-specific target of 210 million announced in November last year (see Latin America: 19 November 2009: Telefónica Targets 210 mil. Clients in Latin America by 2012). Given the region's relatively low penetration rates and low median ages, which basically means that every year there is a large cohort of new potential subscribers being added to the addressable market, this is quite plausible. At the same time, however, it is important to note that through its strategy Telefónica plans to expand the concept of its offering further beyond the traditional telecoms services. There are strong signs that the group wants to become closely involved in services such as mobile financial services and telemedicine, and we assume that the "offering" and "platform" parts of the Bravo! agenda will have a special emphasis on these areas, as Telefónica moves to capitalise on increasing connectivity and convergence across its markets (see Latin America: 11 February 2010: Telefónica Selects Trivnet to Launch Mobile Financial Services in Latin America, World – United – States: 29 January 2010: Telefónica, Cisco Launch Telemedicine Pilot and World – Spain: 15 February 2010: Telefónica, Samsung to Pilot SIM-Based NFC Payment Solution in Spain).
• There Can Be Only Four? Alierta's view on the future composition of the telecoms industry should understandably be seen in the context of where it was commented—an executive chairman communicating his vision for his company's future. Nonetheless, the most interesting bit is that the comments indicate that Telefónica plans to be in a notably different category in terms of scale than three of its closest peers at the moment: AT&T, Vodafone, Verizon, Deutsche Telekom, and France Telecom. This raises questions on the prospects for the forthcoming M&A activity in the industry, and the chances are that any major takeover by one of the world's leading operators might well spark responsive moves by the others. The main explanatory factor in these dynamics is the technological cycle, which requires the telcos to invest heavily in 4G and FTTx equipment over the coming years and as such gives an advantage to the players whose purchasing power is above that of the others. Of the smaller telecoms groups, Telefónica itself has traditionally been linked to Telecom Italia and Royal KPN (or its German unit, E-Plus)—perhaps indicatively, if Telefónica is to reach its 30% market-share target in Germany, which remains one of its main markets, this would basically require a merger with E-Plus, or possibly the entire KPN.