Telefónica eliminates Digital brand, aims for €1.5B in cost savings

Telefónica has unveiled a new organisational structure that will see the elimination of its Digital brand, the creation of a new post called chief commercial digital officer, and the integration of its European, Latin American and digital units into the global corporate group.

As part of the shake-up, Latin American chief Santiago Fernandez Valbuena will become Telefónica's chief strategy officer and join the company's board. COO Jose Maria Alvarez-Pallete's responsibilities will also be greatly expanded. Overall, the Spanish operator hopes the reorganisation will save around €1.5 billion ($2.05 billion) in costs.

Telefónica Digital was created in September 2011 and led by Matthew Key, who will remain with the company as board member of Telefónica O2 UK. Eduardo Navarro will take on the post of chief commercial digital officer.

The new structure and executive shuffle were announced following a board meeting at the company's Madrid headquarters late on Thursday, and comes at the tail end of the Mobile World Congress trade show in Barcelona.

Telefónica had won plaudits for the creation of the Digital unit, which launched a number of innovations such as over-the-top applications, M2M services and augmented reality projects.

"Telefónica Digital was a bold experiment to do just that--to greenhouse key digital projects, in order to better accelerate the company's transformation through a new operating model," Emma Mohr-McClune, service director, global consumer services, at Current Analysis, told FierceWireless:Europe.

"It comes down to this: Matthew Key excelled at creating that new 'non-telco modus operandi' model as set out in 2011, but this model was failing to achieve on its monetisation targets."

In a statement, Telefónica said Telefónica Digital had "duplicated its value since [2011] and has achieved incremental revenues to reach a growth of nearly 20 per cent. In this way, it has become the seed for the Telefónica of the future."

Mohr-McClune noted that Telefónica Digital also had ambitious targets, namely the creation of €5 billion in revenues by 2015, and "material benefits" to the operating businesses, "and these must have been lacking".

"I personally think it is a shame that Key wasn't allowed one more year to create more momentum for these projects, and have a better crack at that €5 billion target, but 'fail fast' is one of the central principles of innovation, the others being trial and error, revision and improvement: putting something out there, seeing how it does, reeling it back in fast if it doesn't work, and then trying something new," added Mohr-McClune.

Telefónica president César Alierta outlined four main growth pillars for the short term, which are revenue growth through the addition of new services; network and system modernisation through the deployment of fibre and LTE; increased efficiency through cost cutting and simplified structures; and strengthening the company's position in the "digital ecosystem".

"We have witnessed a real explosion in data traffic over both fixed and mobile lines," said Alierta. "But the deployment of LTE, the massive adoption of connectivity on all kinds of devices, the new digital services and the growing use of video, have all made the growth seen in recent years pale into insignificance when compared with the volume of mobile data traffic we are going to see over the next five years, which is expected to multiply by 11 with respect to 2013."

Telefónica also reported on Thursday an 8.5 per cent drop in revenues to €57.06 billion in 2013, hit by weaker currencies in Latin America and lower sales in Europe, Reuters reported. However, underlying revenues expanded by 0.7 per cent, while net profit jumped 16.9 per cent to €4.59 billion.

The company said net debt amounted to €45.38 billion, beating a goal to get it below €47 billion by year-end.

For more:
- see this Telefónica release
- see this Reuters article

Related Articles:
Telefónica gains access to Napster music through Rhapsody deal
Telefónica confirms €1.78B UK smart meter deal
Telefónica Digital CEO: M2M is our fastest growing business
Telefónica Digital unveils new strategy, partners with Facebook and Google
Telefónica takes on OTT players with new 'TU Me' messaging app

Read more on