Telefónica Group Executive Chairman and Chief Executive José-María Álvarez-Pallete participated in what was described as his first major media interview since taking on the leadership role from César Alierta in early-2016 (Telefónicawatch, #105). The interview, published in El País, covered the broad scope of the strategy for the Telefónica Group, and Álvarez-Pallete’s views on the public responsibilities that are part of the role at the Spanish institution.

  • Álvarez-Pallete presents as a conviction businessman, with the Group strategy firmly built on his expectations for the development of digital economies and societies.
  • While digital strategy is at the forefront, a foundation of more manageable debt and solid cash flow is also acknowledged.
  • No immediate major revamps expected for senior management team, although “there are always changes”, and up-and-coming internal executives suggest strength in depth.
  • While still willing to exploit Telefónica’s influence on relevant issues, political game-playing looks set to be less of a priority than under previous leadership.

The impression given by the interview reflects the existing image of the head of the telco – reserved, thoughtful, but willing to act decisively based on his own considerable contextualised research.

Living in a digital world…

The “digital revolution” was a key theme of the Álvarez-Pallete interview, and he set out his stall detailing the changes he foresees, and how Telefónica can engage and benefit from them.

The level of digital disruption anticipated requires a change of cultural approach within Telefónica, which Álvarez-Pallete has been encouraging for several years. The Telefónica chief once again reiterated that embracing the digital-driven change in business represents a leap in the dark for the company.

“ When measured objectively, the current technological disruption has no precedent… There’s no precedent you can grab on to, no instruction manual where you can find what changes you have to make. Therefore, it requires you to sit down and take a look at where you are in everything that’s going on and where you think you can be in what’s to come. A company like ours is at the centre of this revolution. ” – Álvarez-Pallete.

From the general ecosystem changes, Álvarez-Pallete moved on to talk up Telefónica’s plans for its AURA platform, which is expected to enable customers to access and control personal data – and for the telco to provide services – building on its cognitive intelligence capabilities.

“ Last year, we billed more in data than in voice and access for the first time. There’s a philosophical change behind this. And that demands the company understands where it’s going because it’s also a cultural change within the company. And then we have to be aware that this is a step towards something even larger, which is the world of artificial intelligence and cognitive systems, where the potential information generated by a telecommunications network is unbelievable… It’s a new world that requires new values. ” — Álvarez-Pallete.

Beyond the highfaluting transformation ambitions for its new digital platform, Álvarez-Pallete also said he expects AURA to lower churn by providing customers with a simple smart tool to manage services. It will also demonstrate the network capabilities Telefónica has, and support the integration of digital services from other companies into its service.

“ I feel very secure when it comes to the company’s strategic vision…. I feel very comfortable, very determined, very excited about the role that we can play in this and about the momentum that we have. The only thing that taxes me is that I would like to go even faster. ” – Álvarez-Pallete.

  • The current Telefónica digital strategy was instigated two years ago according to the Group’s Executive Chairman (it was brought to public attention a little over 18 months ago – Telefónicawatch, #102). The Choose It All strategy had the hallmarks of an Álvarez-Pallete-led approach, and the increased emphasis on big data and CTO-driven transformation – highlighted by Telefónicawatch at the time – can be seen to have reached its next stage with the recently announced platform approach (Telefónicawatch, #114).

Low debt and plenty of cash remain strategic priorities

Álvarez-Pallete also discussed the Group’s financial position as well as its digital strategy, and re-emphasised the commitment to lowering debt as an important element of maintaining operational efficiency.
He hinted that lower debt, and nurturing of cash flows, could be key in maintaining the unprecedented levels of investment that are already underway.

“ I believe that the company is better protected at much lower debt levels. In addition, we’re on a path of increasing cash flow generation, with historically high levels of investment in the company’s life. Never in the company’s recent history have investments [been] equal to 16%-17% of the revenues been made for four straight years, and we’re heading for the fifth. ” – Álvarez-Pallete.

Latin America the key driver for the future

The importance of the Latin American business was particularly stressed during the interview by Álvarez-Pallete, who first came to prominence leading the Group’s operations in the region (Telefónicawatch, passim).

Argentina and Brazil were identified as particularly important markets, with progress in the former expected to follow a similar path to the latter as economic indicators and the political environment becomes more favourable for investment.

“ Brazil is essential for us…. As an economy, what Brazil has done in the last 20 years is very important, and the nature of our investment is very long term… I say the same thing about Argentina. In the long term, we believe that Argentina’s economy will grow… Telefónica wouldn’t be what it is today if it hadn’t made the investments it did in Latin America. ” – Álvarez-Pallete.

The Telefónica CEO put a brave face on the current situation in Venezuela, saying the Group has “held on” in trying times, while noting the “spectacular” performance at a local level. However, he offered little optimism that the difficult political situation for overseas investors is likely to change, and did not address earlier reports that the government may be considering repatriating assets (Telefónicawatch, #116).

Mexico also remains a case apart, but there was no indication that Telefónica plans to exit the market, despite the occasional rumours (Telefónicawatch, #109). Álvarez-Pallete highlighted the importance of having asymmetric regulation in place in the country, although these rules are currently subject to appeal by incumbent América Móvil (see separate report).

“ We have had to realise that we’re not the incumbent company in Mexico; we’re the emergent company. Therefore, we can’t follow the same strategy we use in Brazil, Argentina, Chile, or Peru. The regulatory environment in Mexico has changed, producing asymmetries that I believe are important for being able to grow. We were an extremely prepaid company and we have to evolve towards a more post-paid company. ” – Álvarez-Pallete.

Telefónicawatch noted that neither the German nor UK business was referenced significantly in the interview, although this may reflect the main areas of interest for a Spanish-language newspaper.

One year in, Álvarez-Pallete has his top team in place

Álvarez-Pallete would not be drawn on the prospect of appointing anyone in a role equivalent to his previous Chief Operating Officer post, and indicated there are no plans for any further upheavals among the top levels of management.

He did, however, suggest that the “in-house dynamic” meant that some upheaval in personnel and responsibilities is to be expected, and that “there are always changes”. The need for external inputs was downplayed, though, with the tiers of management below the top level said to be particularly strong with “incredible” executives that may ultimately step up.

This confidence in the Group’s own talent may be proven in the coming weeks as a replacement for the influential outgoing Group CIO Phil Jordan is appointed (Telefónicawatch, #116).

Head of iconic Spanish network institution calls for political neutrality

During his interview, Álvarez-Pallete steered clear of expressing any views on politics, beyond asserting that he considers it important for executives in his position to not attempt to exert considerable influence. On the home front, Álvarez-Pallete was keen to rise above the discussion on the future of Catalonia, and resisted attempts to draw the company into the debate by politicians.

“ I don’t think that our role is to have any opinion whatsoever about the political world… What we’re concerned about is legal stability and growth, and respect for the rules of the game – for ‘institutionality’. ” – Álvarez-Pallete.

This approach could be seen as a significant change in management style from the days of Alierta, where there was a distinct impression that board appointments were used as a hedging strategy to ensure it maintained levels of political influence regardless of the party leading the Spanish government. Although Álvarez-Pallete continues to meet political leaders in Telefónica markets, the willingness to get involved in political battles appears diminished.

While presenting the image of being above the fray of day-to-day politicking, Álvarez-Pallete was prepared to talk about broad social issues and the changes technology is instigating, as well as the economic impact of digitalisation and big data.

“ I often speak about the digital constitution. We have a constitution that’s designed for life, for an environment, but the environments are no longer the same. How do we adapt that, sector to sector? Because we don’t only need physicists, mathematicians, engineers, or technicians. We also need digital lawyers, digital doctors, digital economists, we need digital ethics, digital philosophy. We need any profession that can be imagined and that requires a change of mentality. ” – Álvarez-Pallete.

Additional Álvarez-Pallete insights

  • Álvarez-Pallete is said to be finishing a thesis for his doctorate on the application of big data to the flows of balance of payments, underlining the apparent commitment the Telefónica CEO has for digital transformation and the power of data analytics.
  • Álvarez-Pallete noted that he keeps track of industry developments and trends through articles and reports he finds via his Twitter feed, saying, “I learn what isn’t in books on Twitter… I like to get up early [and] read between 15 and 20 technology accounts. They’re normally short posts and I learn a lot. I then try to retransmit things that I find interesting, without my own opinion.”
  • The Telefónica head noted that he was the first Executive Chairman/CEO to have been appointed from within the company since it was privatised, having built up an 18-year CV of internal posts covering a wide range of roles in terms of responsibility and geography.

Álvarez-Pallete on the potential for big data in society

The capacity to process [the] enormous amount of information that’s going to be generated will increase exponentially. There’s already practically no restriction on storage or processing capacities… Problems that currently require huge simulation scenarios, such as city traffic or the most complex diseases, are going to probably have a treatment or solution. We’re going to be able to know the [consumer price index] in real-time, and not just a sample but of all of a country’s transactions. We’re going to have a country’s social and political pulse in real-time, and not with surveys but with real data and in real-time because we’re going to have the capacity to process this information. ” – Álvarez-Pallete.

Image: Telefónica.

Table of Contents

EXECUTIVE BRIEF

GROUP

6 Management update
6 Álvarez-Pallete shows conviction with in-depth interview
6 Living in a digital world…
7 Low debt and plenty of cash remain strategic priorities
8 Management update
8 Latin America the key driver for the future
9 Management update
9 One year in, Álvarez-Pallete has his top team in place
9 Head of iconic Spanish network institution calls for political neutrality
11 Management update
11 Acquisitions and disposals
11 Telefónica finally offloads Mediaset stake
12 People
12 Table 1 People movement highlights
12 Acquisitions and disposals

GLOBAL RESOURCES

14 Awards and accreditations
14 5G
14 Telefónica joins 5G PPP project for verticals
15 5G-TRANSFORMER project in detail
16 Telxius
16 Cloud services
16 Telefónica cloud gathers in LatAm


DIGITAL SERVICES

19 Big data
19 Telefónica puts Synergic Partners to work
19 Research pact with Microsoft underway in Spain
20 IoT
20 Telefónica and Huawei talk up NB-IoT lab in Chile
21 eSports
21 Research and development
21 Chile R&D: commercialising ahead of schedule
22 Suppliers
22 Concern over NB-IoT interoperability?
24 Partners
24 Stingray Music has Telefónica deal in its sights
25 Security
25 ElevenPaths trumpets partnership with BitSight

LATIN AMERICA

27 Regional
27 Terra portal shuts, spirit remains in Brazil
27 Telefónica extends Grey Juice deal to Ecuador and Peru
28 Argentina
28 Argentina
28 Telefónica mulls Argentina IPO amid Cablevisión threat
29 Argentina may embrace belief that sharing is caring
29 Group strategic priorities being juggled in Argentina
29 Cablevisión and Telecom leading the way on convergence
30 Brazil
30 Guatemala
30 Open Cloud availability heralded in Argentina
32 Brazil
32 Vivo to use small cells in JCDecaux’s street furniture
33 Vivo goes live with VDC-based Cloud Plus 3.0
33 Cloud Foundation set for imminent launch
33 New cloud reseller in Brazil
34 Mexico
34 Telefónica falls to fourth in spectrum holdings
34 Telefónica’s position raises incentives for sharing deals
35 Peru
35 América Móvil reform appeal exposes Telefónica to back-charges

EUROPE

37 Germany
37 Spain
37 Telefónica enterprise cloud portfolio builds
39 Germany
39 Spain
39 New replicability test proposed by CNMC
40 Spain
40 United Kingdom
40 Cornerstone overhauled by JV partners
41 Spain
41 United Kingdom
41 Greater agility a key incentive
42 Inner city pressure
42 Table 2 Cornerstone JV: overview
43 Ofcom unveils updated 5G auction plans
44 United Kingdom
44 All over by Christmas, unless Three opens new front
44 O2 decides to shut up and put up

FURTHER READING

INDEX

Index

Symbols

3GPP 20, 22
5G Automotive Association 14
21st Century Fox
Sky plc 37

A

ABC 44
Advanced 5G Network Infrastructure for Future Internet Public-Private Partnership (5G PPP) 14, 15
AI 19
Altán Redes 34
América Móvil 8, 29, 35
Claro 29, 35
– Slim, Carlos 35
– Telcel 34
– Anatel 30
Apple 24
Arqiva 42
Atos Origin 15
AT&T 21, 24, 34
Audi 15

B

Beachcroft 42
BitSight 25
BMW 15
British Broadcasting Corporation 15
BT Group 15, 37, 43, 44

C

Cellnex 32
China Mobile 20
Citrix Systems 12
CK Hutchison 29, 43, 44
H3G
– UK 43, 44
– – Cluttons 42
CNMC 39

D

Daimler 15
Deutsche Telekom 15, 22, 37

E

EMC
VMware 33, 37
– Empresa Brasileira de Telecomunicações S.A. (EMBRATEL) 30
Entel 35
Ericsson 15, 22, 40
5G-ConnectedMobility 15
– European Union 37
European Commission 14
– F
Facebook 16
Fiat SpA 15
Football Association 21
Fujitsu 15

G

Gilat Satellite Networks Ltd 35
Google 24
Grey Juice Lab 27
Grupo Clarín 28, 29
Cablevisión 28, 29
– GSM Association (GSMA)
Mobile World Congress 20, 41
– H
Huawei 14, 15, 16, 20, 22, 30, 33
Hutchinson Engineering 42

I

Iberbanda 39
IFT (Mexico) 35
Intel 15, 22
InterDigital 15

J

JCDecaux 32

K

Kamstrup 20
KPMG 27

L

LV= 44

M

Marcatel 30
Aldea Solutions 30
– McAfee 39
McKinsey 19
Mediaset 11
Mediaset Premium 11
– Microsoft 16, 19, 37
Millicom 34
Mirantis 15
MIT 21
MVNOs 30

N

NBC 27
NEC 15
Nokia 15, 22, 34
Nokia Networks 34
– O
Ofcom (UK) 43, 44
Oi SA 30
Ono 34
Orange 15
Osiptel 35

P

ProInversión (Peru) 35

Q

Qualcomm 15, 22

R

Regions
APAC
– Australia 22
– – China 20
– – Taiwan 15
– – EMEA
– Europe 12, 14, 16, 20, 22, 32, 36, 37, 39, 41, 42
– – France 15, 32
– – Germany 8, 12, 15, 19, 21, 37, 39, 41
– – Ireland 12, 42
– – Italy 11, 15, 21, 32
– – Spain 6, 8, 9, 11, 12, 15, 16, 19, 21, 24, 32, 33, 34, 37, 39, 40, 41
– – UK 8, 11, 12, 29, 33, 40, 41, 43, 44
– – Latin America 8, 12, 16, 20, 24, 26, 27, 28, 29, 30, 33, 34, 41
– Argentina 8, 16, 20, 27, 28, 29, 30, 33, 41
– – Brazil 8, 12, 16, 20, 27, 30, 32, 33, 41
– – Chile 8, 16, 20, 21, 27, 30, 33, 41
– – Colombia 20, 27, 28, 30, 33, 34
– – Costa Rica 20
– – Ecuador 11, 27, 30
– – Guatemala 30
– – Mexico 8, 16, 20, 27, 28, 30, 33, 34, 35
– – Panama 30, 32
– – Peru 8, 20, 27, 30, 33, 35, 41
– – Uruguay 20
– – Venezuela 8, 27, 30
– – North America
– Canada 24, 30
– – USA 16, 22, 27, 30, 32, 33
– – S
Samsung 15, 41
Sercomtel 30
Sigfox 20, 22
SK Telecom 15
Sony 39
Spotify 24
Stingray 24

T

Technologies
2G 41
– 3G 21, 22, 32, 39, 41
– 4G
– LTE 14, 22, 32, 34, 39, 41, 42
– – WiMAX 39
– – 5G 14, 15, 40, 41, 43
– Broadband 22, 28, 30, 39, 44
– Cloud computing 33
– eHealth 15
– ICT 40
– Internet of Things 14, 19, 20, 22
– LPWA 22
– M2M 22, 32
– MIMO 14, 15
– NB-IoT 20, 21, 22
– Network functions virtualisation (NFV) 14, 15
– OpenStack 15, 16, 30
– R&D 14, 15, 20, 21
– SIM 30
– Smart metering 20
– Software defined networking (SDN) 14, 15, 37
– Telematics 15, 44
– TV 21, 28, 29, 39
– VoD 27, 28
– Web Services 37
– Telecom Argentina 28, 29
Telefónica Group 6, 11, 14, 15, 19, 20, 22, 24, 27, 29, 34, 41
Associates and investments
– Iberbanda 39
– – Sigfox 20, 22
– – Digital 12
– Digital services
– Data Transparency Lab 21
– – ElevenPaths 25, 37
– – LUCA 19
– – M2M 22
– – OTT 27
– – Synergic Partners 19
– – Telefónica I+D 14, 15, 21
– – Terra 27
– – Tuenti 30
– – Europe
– Germany 37, 39
– – O2 11, 37, 39, 40, 41, 42, 43, 44
– – Spain 12, 21, 37, 39, 40, 41
– – Telefónica Deutschland 14, 15, 19, 39
– – Telefónica NEXT 19
– – UK 12, 29, 40, 42, 43, 44
– – Executives
– Alierta, César 6, 9
– – Alonso, Chema 21
– – Álvarez-Pallete Lopez, José María 6, 7, 8, 9, 11, 29, 34
– – Blanco, Enrique 41
– – Carbajo, Cayetano 14
– – Casas, José Luis 12
– – Castro, Gustavo 28
– – Claros, Juan 32
– – Evans, Mark 42, 44
– – Jordan, Phil 9
– – Muñoz, Claudio 21
– – Pullen, Tim 42
– – Salgado, Alex 33
– – Tsouroulas, Nikolaos 25
– – Ward, Peter 42
– – Global Resources
– 5TONIC 15
– – BRUSA 16
– – Cornerstone Telecommunications Infrastructure 40, 41, 42
– – Seguros de Vida y Pensiones Antares 12
– – Telefónica Business Solutions 16
– – Telxius 11, 16, 29
– – Latin America
– Brazil 27, 32, 33
– – Chile 20, 21
– – Mexico 34
– – Vivo 32, 33
– – Movistar+ 21, 41
– Products and services
– Fusi 41
– – Living Cloud 33, 37
– – Movistar+ 21, 41
– – Movistar Play 27
– – Movistar Video 27
– – O2 Drive 44
– – O2 o 41
– – On Video 27, 28
– – pay-TV 11, 27, 28, 37, 41
– – SmartM2M 22
– – VDC 3.0 33
– – Vivo Cloud Plus 33
– – Tuenti 30
Twitter 8

U

University of Surrey 15
5G Innovation Centre 15
– V
Verizon Communications 32
Virgin Group 35
Virgin Mobile 35
– Vivendi SA 11
Universal Music Group (UMG) 27
– VMware 33, 37
Vodafone Group 12, 15, 22, 32, 37, 40, 41, 42, 43, 44
Spain 40
– UK 40, 42
– W
Walt Disney 27
Warner Music Group (WMG) 27
WND 20
WPP plc 12

Z

Zegona
Telecable 40
– ZTE 15, 39

About

About Telefónicawatch

Report: #118
Covering: July 2017
Published: July 2017
Next report: September 2017
For more information visit: Telefónicawatch