Can Latin America Be Telefónica’s Saviour?

Spain, Europe and Latin America. For years that was the business structure that sustained Telefónica, but twenty-four months ago the company  decided to simplify its brand.

The company now has two main divisions: Europe and Latin America, concentrating on its position in the Old Continent, and growth opportunities in emerging markets. The company also wants  to play in the digital world, and has set up its Telefónica Digital wing  London, from where it manages subsidiaries in Madrid, São Paulo, Silicon Valley and Asia, .

The phone giant also set up a Global Resources unit which aims to gain synergies, and turn the company into a truly global entity – the biggest organisational change since the arrival Caesar Alierta  (pictured) as president in 2000.

The European market still makes up half of Telefónica revenue, and is increasingly tough. Countries like the UK, Germany and Italy are  characterised by mature services and intense competition, and offer only limited margins and growth compared to developing countries.

On top of this, there is the adverse economic situation. In Spain the loss of purchasing power, lower prices and the continual drain of customers drove the company’s turnover down to €7,720 million in the first half of 2012, 11.7 percent less than the previous year.

Meanwhile, the volume of business in Latin America soared 7 percent, to €14,963 million.

A shift in power

What are the causes of this ambivalence?

Telefónica leads in Latin America’s revolution in mobile broadband. A steady increase in spending on data already accounts for 29 percent of total revenues for its cellular service.

The company has 208 million customers in Latin America, of which 173 million are mobile. And it has only just begun. Forecasts indicate that in the next five years the region will surpass established markets by number of smartphones and their IP traffic will be multiplied by seven, with an annual growth rate of 49 percent.

Added to this, fourth generation (4G) LTE networks are coming to Latin America, and will extend into Puerto Rico, Uruguay and Colombia. The LTE standard has also been tested by operators in Argentina, Bolivia, Chile, Dominican Republic, Nicaragua, Mexico, Peru and Brazil.

In Brazil, Telefónica has been  now awarded a block of 450 MHz spectrum with nationwide coverage via Live for an amount close to  €408 million euros.

Brazil is one of the main drivers of growth in Telefónica, well above the 14 other Latin American countries in which it operates. With €6,900 million in the first six months of the year, and 91.2 million total accesses, it  practically equals Europe, with a mobile business valued at €4.253 million. It is only a matter of time before Brazil pulls ahead of Spain.

Telefónica’s office in  São Paulo, Brazil has been made the corporate headquarters for the region, so business is now often settled far from Madrid, saving time and travel for the division president of Latin America, Santiago Fernández Valbuena. This summer,  Telefónica opened a new data centre in the town of Santana de Parnaíba near São Paulo, that supports all 90 million of  Telefónica Brazil’s customers.

Investing in the future

The company has been in Latin America since the early 90s, when privatisation began in the sector, with an estimated cumulative investment since then greater than €110,000 million from asset acquisitions and infrastructure development.

A few days ago the company launched a network of venture capital funds called Amerigo, with an initial investment of €300 million, focused on digital technology companies in Spain and Latin America, aiming to give them funding beyond traditional sources such as Silicon Valley. Amerigo sits alongside other initiatives such as the seed-stage startup funding firm Wayra and the direct investment programme  Telefónica Ventures.

And if this network of zeros and greenbacks were not enough, Alierta bought a social network in 2010:  Tuenti is an invitation only social network, which will be launched in the Americas with a new mobile application and a reinforced privacy model which might stand up to titans like Facebook, Twitter or Google+.

Can the company internationalise the platform, as it has already done with  Telefónica itself?

Euro Story: each week, TechWeekEurope will publish a selected story from across  NetMEdiaEurope’s network of European sites. This week’s story by Monica Tilves is from SiliconWeek.es. It was translated and localised by Peter Judge

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