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Telefónica, S.A. 0
Telefónica vision around EU Industrial Policies
20-21 October, 2011
Telefónica S.A.
Telefónica, S.A. 1
Contents
Telco sector contribution to the economic development
Sector challenges for the future
01
02
Telefónica, S.A. 2
Telco sector contribution to the economic development
01
Telefónica, S.A.
Telefónica, S.A. 3
Argentina : 22.6 million
Brazil : 79.8 million
Central America : 7.3 million
Colombia : 12.3 million
Chile : 12.4 million
Ecuador : 4.5 million
Mexico : 21.2 million
Peru : 17.5 million
Uruguay : 1.8 million
Venezuela : 10.4 million
Data as of June 2011
Wireline market rank Mobile market rank
Total Accesses (as of Jun11)190.4 Mill.
Notes: - Central America includes Guatemala, Panama, El Salvador, Nicaragua and Costa Rica- Total accesses figure includes Narrowband Internet accesses of Terra Brazil and Terra Colombia, and Broadband Internet accesses of Terra Brazil, Telefónica de Argentina, Terra Guatemala and Terra Mexico
Telefónica is today a leader in the Latin American Telco market …
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Telefónica, S.A. 4
Data as of June 2011
Spain : 47.4 million
UK: 22.9 million
Germany : 24.0 million
Ireland : 1.7 million
Czech Republic : 7.7 million
Slovakia : 1.0 million
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2
Wireline market rank Mobile market rank
Total Accesses (as of Jun11)104.7 Mill.
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… enjoys a significant footprint in Europe …
3
Telefónica, S.A. 5
• The largest worldwide strategic alliance in the industry. Combined accesses nearly 625 million (June 2011), which is about 10% of world’s population
• 2nd integrated operator in China with a countrywide 3G licence (European standard)
• Mutual investment agreement• Telefónica: 9.7% in China Unicom• China Unicom: 1.37% in Telefónica
• Joint cooperation in different areas such as service provisioning, equipment & devices acquisition, R&D+i, sharing of best practices …
Strategic & Industrial alliances
• Largest Telecom alliance in Europe , with ~18.5% market share (1)
• Combined presence in 7 European countries
• Combined accesses in Europe in June 2011 (millions of customers):
• Telefónica …………………………………….. 104.7
• Telecom Italia …..………….…………………62.3
• Total industrial alliance ..……… .… 167.0
Business alliances
… and it is widening its horizons for growth through strategic, industrial and business alliances
RCS-e
…
(1) Market share in Western Europe+Czech Republic+Slovakia Telco market as of Pyramid Research’s Global Market Data Forecast Q4 2010
Telefónica, S.A. 6
Mobile 77.1%
Wholesale 1.7% Pay TV 1.1%
Wireline 13.8%
Wireline Data &
Internet 6.4%(1) Plus Morocco (2) Plus U.S.A. and Puerto Rico(3) China, Italy and Portugal
So, Telefónica shows today an unique portfolio with in the Telco Industry
Revenues 2Q11: 30,886 Mill.€OIBDA 2Q11: 11,304 Mill.€Net Income 2Q11: 3,162 Mill.€
295.0 million accesses• 104.7 million in Europe• 190.4 million in Latin America
Operations in 26 countries• 6 in Europe (1)
• 14 in Latin America (2)
• 3 through strategic and industrial alliances (3)
About 285,000 professionals
• 29% in Europe• 70% in Latin America• 1% in other countries
T-Spain28.3%
Others & Eliminations 1.1%
T-Latam45.9%
T-Europe18.6%
T-Spain34.6%
Others & Eliminations 0.9%
Accesses by Business
Revenues by Region
Accesses by Region
T-Latam64.5% T-Europe
19.4%
T-Spain16.1%
T-Latam45.7%
T-Europe24.8%
OIBDA by RegionData as of June 2011
Telefónica, S.A. 7
Source: World Economic Forum; “The Global Information Technology Report 2008-2009” and “Global Competitiveness Index 2009-2010 rankings”
Source: World Bank; Qiang 2009
ICT industry is core for the recovery from the curr ent economic turmoil, and telecommunications are the basis for I CT services
Increase in GDP growth (pp) per each 10-percentage- points increase in Telco services penetration
Competitiveness vs. Network Readiness
Chile
China
Czech Republic
Denmark
Port ugal
Puert o Rico
Unit ed St at es
Aust ralia
Aust ria
CanadaFinland
France Germany
It aly
Japan
Net her lands
Slovak RepublicSpain
United Kingdom
3,90
4,20
4,50
4,80
5,10
5,40
5,70
6,00
3,90 4,20 4,50 4,80 5,10 5,40 5,70 6,00
Global Competitiveness Index
Net
wor
k R
eadi
ness
Inde
x
0,0 0,3 0,5 0,8 1,0 1,3 1,5
Fixed-Line
Phone
Mobile Phone
Dial-Up
Internet
Broadband
Internet
Developed countries Developing countries
0.0 0.3 0.5 0.8 1.0 1.3 1.5
As a key ICT player, Telefónica’s activity is core to productivity and economic sustainable growth in the 21st century
Telefónica, S.A. 8
Telefónica’s activity is core to sustainable economic development
Employment1.Quality and
Competitiveness of its ICT services
3.Investment oninfrastructures
2.
+ 21%
- 7%
IPC
Communications
Evolution of Telefónica’s global investment in R&D+i (Mill.€)
Evolution of general CPI and Communications prices in Spain: 2002-2009
TEF’s 2010 investment in R&D+i was
equivalent to 7.9% of
that year’s total revenues
Source: AETIC
Its activity contributes to economic development in the countries where it operates through three main ways ...
1€ invested in Broad Band means 3€ of GDP growth **
* Plus 2,389 M€ to buy spectrum and licenses
**Source: The Impact of Broadband on Jobs in the German Economy, Katz et al., 2009
23%
77%
Recurrent
Growth & Transformation
Telefónica’s 2010 global CapEx mix8,228 Mill.€ *
In 2010 Telefónica directly employed about 270,000 people and created many other indirect
jobs in our global and local partners and providers
Evolution of direct Telefónica’s staff
2000 2010
x 1.8
269,047
148,707
2004 2009
2,398
x 2.0
I+D 797I+D 460
2004 2010
4,814
Telefónica, S.A. 9
Telefónica´s push on ICT services
Start-up funding
Geographic Inclusion
Education Inclusion
.
.
.
… and to push to widespread use of ICT services
Positive contribution of the telco sector to the ov erall 2020 targets
How is the sector helping to The 5 targets for the EU in 2020
(1) Employment : 75% of the 20-64 year-olds to be employed
(2) R&D / innovation: 3% of the EU's GDP (public and private combined) to be invested in R&D/innovation
(3) Climate change / energy • greenhouse gas emissions 20% (or even 30%, if the conditions are right) lower than 1990 • 20% of energy from renewable • 20% increase in energy efficiency
(4) Education : Reducing school drop-out rates below 10% at least 40% of 30-34–year-olds completing third level education
(5) Poverty / social exclusion: at least 20 million fewer people in or at risk of poverty and social exclusion
OTHER TOPICS ABOUT POSTIVE IMPACT OF ICT
(1)E health: Potential savings using ICT
(2)Increasing productivity
(3)…
WEALTH ENGINE
10
Telefónica, S.A. 11
Sector challenges
02
Telefónica, S.A.
Telefónica, S.A. 12
And telecommunications are the basis and
the enabling factor for the Networked Society
� Increasingly powerful devices
� Social networking
� Huge increase of digital contents
� User Generated Contents
� Hundreds of thousands of applications
� e-World : e-Health, e-Learning, e-Financial Services, e-Travel
� M2M : smart metering, e-Car, e-Logistics, vending
� Everybody and everything connected
The world is today a Networked Society, and it will get more and better connected every day...
The new environment which drives demand
The great digital opportunityFrom Internet of People
to Internet of Things
Devices
50
5
0.5
Bn 50,000 M
1875 1925 1950 2000 202519751900
0
PeoplePlaces Machines
Customers
Apps. &Services Devices
Traffic
Telefónica, S.A. 13
… offering significant opportunities for growth for the ICT industry …
4.1%
7.3%
6.6%
Global accesses evolution forecast
Accesses (millions)
CAGR 2010F – 2014FMobile Broadband: 31%Fixed Broadband: 11%
Net adds of accesses 2010F – 2014F
2,018 Mill85% Mobile
91% EmergingMarkets
Source: Pyramid Research Data Forecast (Jan 2011)
1,739
5,241
6,979
2,041
6,956
8,998
Fixed
Mobile
Total
2010
2014
CAGR
-3.5%
1.5%
3.5%
5.9%6.3%
1.3%
4.3%4.4%
2.3%
4.8%6.1%5.4%
North
America
Europe Asia &
Pacific
Latin
America
Middle East
and Africa
Worldwide
CAGR 2007-10F CAGR 2010F-14F
1,042.9
916.0
894.0
212.4263.6
ICT Market growth forecast
2010F ICT Market size (bn US$)
Source: Gartner Market Databook (Oct 2010)
3,329.0
Telefónica, S.A.
Communications and
applications
Regulated
Non regulated
Device providers
Operators
Internet players
Market attractiveness is reinforcing the competitiv e dynamic…
14
Telefónica, S.A.
Users Operators Internet Players
Some users subsidy other users and traffic
generators
Some users subsidy other users and traffic
generators
Others have to assume the increase in transport costs
Others have to assume the increase in transport costs
Some generate traffic and obtain revenues
from advertising
Some generate traffic and obtain revenues
from advertising
…pushing us towards an unsustainable business model due to this new ecosystem
Telefónica, S.A.16
Traffic and voice decoupling should be avoided
Traffic
Revenues
Voice Data
Decoupling
Time
Costs
Telefónica, S.A. 17
Active cooperation among ICT players key to address industry challenges
New services:� Wholesale Applications Community
� Rich Communication Suite� NFC Payments and M2M
� Mobile advertising
A more stable & predictable regulatory outlook
Open operating systems needed to facilitate the development of new services
Wide range of device suppliers
New Internet Economic Model needed
Sustainable Internet Model
Retail Pricing Peering
Interconnection
Enhanced QoS
Managed Services
Internet players
Device suppliers
Telco Operators
Communicationsand
Services beyond Connectivityecosystem
Telefónica, S.A. 18
Telcos have a key role to play in the ICT ecosystem
Revenue sharing Payment for segmented
bundles of services
Payment for distribution and additional services
Content, advertising, on-demand services & apps
Third Parties End Users
Partners complementing our
capabilities
Demand unified and simple services
Telco as Service Platform
Beyond Applications: Advanced platforms for quality service delivery
Adding comprehensive connectivity & service management
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Universal BB 2013
100%Populatio
n
100%Populatio
n
30Mbps 2020
100%Populatio
n
100%Populatio
n
100Mbps 2020
50%Populatio
n
50%Populatio
n
Starting Point: Spain
95% DSL coverage and 90% 3G coverage (2010)
95% DSL coverage and 90% 3G coverage (2010)
28,7% VDSL, Cable and Fiber coverage (2010)28,7% VDSL, Cable and Fiber coverage (2010)
3% penetration cable and fiber (2010)3% penetration cable and fiber (2010)
Technologies
Mobile is keyMobile is key
Economic Effort
Very importantVery importantImportantImportant
Furthermore, digital agenda targets are demanding
New mobile technologies (LTE) are required
New mobile technologies (LTE) are required
Cable and FTTH are essentialCable and FTTH are essential
Extraordinary. Demand stimulation policies needed
Extraordinary. Demand stimulation policies needed
20
Sector challenges and demands(I): General
Need of sustainable business models (e.g. Internet) and more efficiente use of scarce resources
One binding European framework : The rules of the game must be the same all over Europe
Scale and specialisation are overall market trends
Europe should foster innovation and investment, as much as consumer interest. Better support to investor agents
Need to improve education-related policies to foster innovation and entrepreneurship
21
Sector challenges and demands (II): Sector specific
Business models could be two-sided, based on commer cial agreements , respecting the principles of openness and non-competitive discrimination
Europe should help to improve the framework conditions for NGA roll out.
Europe should promote traffic management differentiation to foster innovation and new services
Inmediate need for Europe to promote open and interoperable standards
More adequate policies and regulatory framework for Intellectual Property Rights and data protection issues
22
… to benefit all European citizens.
Europe has a great opportunity to foster its positioning as a competitive region in the future…
