Telefónica Reorients Around Tech, Waiting on 5G

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Telefónica, like most operators, is facing a new era of rampant technological change and disruption that is forcing the company to make daring decisions about its path forward, said José María Álvarez-Pallete, chairman and CEO of Telefónica, during a press conference last week.

The global operator is prioritizing around key markets in Spain, Brazil, the United Kingdom, and Germany, resulting in the spin off of operations in Latin America. It’s also creating a new business unit called Telefónica Tech to target growing opportunities in cybersecurity, cloud computing, and IoT.

The operator also created a new holding company for its network infrastructure called Telefónica Infra that will focus on gaining more value out of various components of its radio access network (RAN), including distributed antenna systems, data centers, edge computing, greenfield fiber projects, and submarine cables.

Telefónica serves 340 million customers, including 6.5 million businesses, and implementing massive changes to a company of its size are not going to be easy, Álvarez-Pallete wrote in a public letter about the company’s reorganization. “It is hard and it is full of challenges. And for this reason, few dare to do it in a decisive way,” he wrote.

“Companies that do not understand that the world is changing, socially, technologically and economically, are destined to disappear. Companies that do not assume their responsibility in this new world will cease to be relevant in the short term,” he added. “Executives who are not committed to the long term and sustainability are not being responsible.”

Telefonica Eyes Opportunities in Virtualization

Álvarez-Pallete envisions a company of business units that are fully digital and able to swiftly introduce and make changes to services that benefit Telefónica’s customers. That framework includes fiber, 5G networks, and cognitive systems based on artificial intelligence (AI) that can, in real time, “turn networks into examples of virtualization, softwareization, and clouditization,” he explained.

The future of Telefónica isn’t about a single technology — although he described AI as “king” — but rather everything that touches its networks, including 3D imaging, robotics, 5G, mixed reality, cloud computing, edge computing, and machine learning (ML), Álvarez-Pallete said during the press conference.

“All of these technologies are hitting us at the same time,” and advancements and widespread disruptions are occurring daily, he said. “There isn’t a single area that isn’t impacted by technology today, so we’re talking about an unprecedented accumulation of technology.”

Double-Digit Growth in Tech Businesses

The businesses that fall under the Telefónica Tech umbrella — cybersecurity, IoT, big data, and cloud — are already growing by double-digit figures, according to Álvarez-Pallete. “These are just examples [of]  products and digital services which have become essential and are going to become more essential as time goes on.”

The company is well positioned to compete in these areas and it is eyeing some small acquisitions to bolster that effort, but don’t expect the company to make any major acquisitions, Álvarez-Pallete said. The full potential for cybersecurity, IoT, and cloud computing is still relatively unknown, but Telefónica is convinced that it will reach grandiose level and is reorganizing the company to meet the opportunity, he explained. “We haven’t focused on them enough,” he said.

“The explosion of connectivity and artificial intelligence and the new needs of our customers — the central axis of our strategy — require innovative, intelligent, and sustainable technology solutions that generate a positive impact on the environment and help manage the digital transition,” Álvarez-Pallete wrote in his letter.

With respect to 5G, Telefónica has announced multiple trials, partnerships, and pilots but it doesn’t yet provide commercial 5G service. Álvarez-Pallete didn’t provide any updates about the operator’s timeline for 5G deployments, but it appears to be furthest along in Germany where its commercial 5G is expected to launch in 2020.

“There’s going to be a world of possibilities when 5G is ready,” he said. “Lots of companies that are announcing 5G [are]not talking about real 5G because they have a lot of bottlenecks.”

Álvarez-Pallete noted that Spain, Brazil, and Germany are poised to enter the 5G era soon. “We’re ready to roll but I think we need to wait for the right moment,” he said.

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