Telefónica to cut handset portfolio by nearly 60%

Telefónica plans to reduce its handset portfolio by nearly 60 per cent as part of its in-depth reorganisation.

The operator said that it hopes to cut the number of handsets on offer from 240 to less than 100. Jose Maria Álvarez-Pallete, the head of Telefónica's European operations, said the move will have a positive impact on earnings, according to Bloomberg.

While the operator said the level of savings from this cutback is unclear today, Álvarez-Pallete said that some savings will be invested to improve customer service. Group handset purchasing will in future be handled by the UK-based Telefónica Digital unit, headed by Matthew Key, and mirrors what Vodafone has been doing for some time.

Data compiled by Bloomberg illustrate the size of Telefónica's problem with just 12 handsets that are common to all markets where it operates. Apple, Nokia and Samsung are presently the company's three largest handset suppliers.

However, Kevin Yates, a London-based equity analyst at Royal Bank of Scotland, warns that the whole concept of the phones stocked by an operator is that it's largely consumer driven. "If they [Telefónica] were to get it wrong and only stock the phones that people didn't want, they are going to be in trouble, that's the risk," he told Bloomberg.

In addition to this radical shift in handset strategy, Telefónica also announced it would look to invest in technology start-ups in an effort to find the next wave of innovation. The company said that it will cluster its partners in a number of connected technology sites based in cities such as London and Munich.

"We do not want to go to California for new technology. I want to have this in London, Berlin, Munich, Prague and Dublin - to create local silicon valleys around the world that are all connected," Álvarez-Pallete told the Financial Times. "It is about creating the right ecosystem for this to work." 

Telefónica said it will consider investing up to 10 per cent in appropriate start-ups around Europe, together with offering office accommodation for six months and introductions to other successful entrepreneurs.

For more:
- see this Bloomberg article
- see this Financial Times article (reg. req.)
- see this Reuters article

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