Telefónica Germany plots fast data, convergence strategy after tough Q1

Telefónica's O2 Germany said "challenging market conditions" were responsible for a decline in wireless service revenue and earnings in the first quarter, although the operator was able to report growth in revenue from wireless data services.

As recently stressed by Vodafone Germany when it announced plans to cut 500 jobs, Telefónica Germany blamed the decline on the highly competitive mobile services market and the reduction in mobile termination rates.

The operator, which carried out an IPO at the end of last year and is still an indirect wholly owned subsidiary of Telefónica, has now clearly laid out its strategy for the coming few years in a bid to combat these challenges, and said high-speed data and converged service offerings will be key to driving renewed growth. Nonetheless, like all European operators it faces increasing challenges from rivals in its own market as well as from over-the-top providers, which are cutting into previous cash cows such as voice and SMS.

The tough competitive environment on the German market caused Telefónica Germany's operating income before depreciation and amortisation to fall by 0.7 per cent to €278 million ($364 million) in the first quarter, which Reuters said missed the average of analysts' expectations of €293 million.

At the same time, revenue from mobile services declined by 3.3 per cent to €758 million, although a 23.5 per cent increase in handset revenue enabled the company to post a small 1 per cent increase in total wireless revenue to €914 million. Including revenue from its wireline business, which declined by 10.7 per cent to €315 million, total first-quarter revenue was 2.3 per cent lower at €1.23 billion.

On the positive side, the operator emphasised that its data business continued to grow due to increased smartphone usage.

"Compared with the first quarter 2012, smartphone penetration of O2 contract customers rose by 15.4 percentage points to 65.0 per cent," the operator said in a statement. "Measured on the basis of total customers, penetration was already 27.9 per cent. Over the same period, data revenue excluding SMS increased by 24.1 per cent."

Telefónica Germany introduced a range of new smartphone tariffs under the O2 brand in the first quarter, with a clear focus on mobile data and value-added services.

"The great customer interest especially in the O2 Blue All-In M tariff proves the high importance of data usage for the customers," the operator added. "In the first quarter of 2013, non-SMS data ARPU (average revenue per user) rose by 19.0 per cent to €3.9 compared with the first three months of 2012."

Telefónica Germany is also continuing to invest in its mobile network, and spent 9.4 per cent more on capital expenditures in the first quarter compared to the year previously, mainly on the ongoing expansion of its LTE network.

High-speed fixed and mobile data and converged offerings will be key focus points for the remainder of this year, stressed CEO Rene Schuster. The company is also looking to extend its position in the fixed broadband market to support its multi-play approach, and has just signed a memorandum of understanding with Deutsche Telekom to enable it to use the operator's high-speed VDSL and vectoring products; using vectoring, operators expect to be able to offer home broadband speeds of up to 100 Mbps.

"High-speed internet is the future," Schuster said in a statement. "Together with our heavy-duty mobile data network, we will be able to further advance our convergence strategy. The big winners are our customers and partners. Thereby we can offer them best fixed network products on top of our mobile offerings."

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

Related Articles:
O2 Germany's IPO boosted by 3-year tax holiday
Telefónica on track with European revamp, claims COO
Telefónica Europe's Q1 results highlight data growth, but Spain struggles
Vodafone Germany to cut 500 jobs as competition bites
KPN CEO pushes for network sharing with O2 Germany

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