Telefónica vision around EU Industrial Policies 20-21 October, 2011 Telefónica S.A. Telefónica, S.A. 0
Contents 01 Telco sector contribution to the economic development 02 Sector challenges for the future Telefónica, S.A. 1
01 Telco sector contribution to the economic development Telefónica, S.A. Telefónica, S.A. 2
Telefónica is today a leader in the Latin American Telco market Data as of June 2011 1 2 2 1 1 2 1 3 2 1 2 2 1 2 2 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 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, S.A. 3
enjoys a significant footprint in Europe Data as of June 2011 Wireline market rank Mobile market rank 1 4 1 1 2 4 2 2 3 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 Total Accesses (as of Jun11) 104.7 Mill. Telefónica, S.A. 4
and it is widening its horizons for growth through strategic, industrial and business alliances Strategic & Industrial alliances 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 Business 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 (1) Market share in Western Europe+Czech Republic+Slovakia Telco market as of Pyramid Research s Global Market Data Forecast Q4 2010 RCS-e Telefónica, S.A. 5
So, Telefónica shows today an unique portfolio within the Telco Industry Data as of June 2011 Revenues by Region OIBDA by Region 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) T-Latam 45.7% Others & Eliminations 1.1% T- Europe 24.8% T-Spain 28.3% T-Latam 45.9% Others & Eliminations 0.9% T-Spain 34.6% T-Europe 18.6% (1) Plus Morocco (2) Plus U.S.A. and Puerto Rico (3) China, Italy and Portugal About 285,000 professionals 29% in Europe 70% in Latin America 1% in other countries Revenues 2Q11: 30,886 Mill. OIBDA 2Q11: 11,304 Mill. Net Income 2Q11: 3,162 Mill. Accesses by Region T-Spain 16.1% T-Latam 64.5% T-Europe 19.4% Accesses by Business Wholesale 1.7% Pay TV 1.1% Mobile 77.1% Wireline 13.8% Wireline Data & Internet 6.4% Telefónica, S.A. 6
As a key ICT player, Telefónica s activity is core to productivity and economic sustainable growth in the 21st century ICT industry is core for the recovery from the current economic turmoil, and telecommunications are the basis for ICT services Increase in GDP growth (pp) per each 10-percentage-points increase in Telco services penetration Competitiveness vs. Network Readiness 0,0 0.0 0,3 0.3 0,5 0.5 0,8 0.8 1,0 1.0 1,3 1.3 1,5 1.5 Network Readiness Index 6,00 5,70 5,40 5,10 4,80 4,50 4,20 3,90 Port ugal Czech Republic Spain Slovak Republic Chile Puert o Rico China It aly Denmark Unit ed St at es Net herlands Finland Unit ed Kingdom Canada Japan France Aust ria Germany Aust ralia 3,90 4,20 4,50 4,80 5,10 5,40 5,70 6,00 Global Competitiveness Index Fixed-Line Phone Mobile Phone Dial-Up Internet Broadband Internet Source: World Economic Forum; The Global Information Technology Report 2008-2009 and Global Competitiveness Index 2009-2010 rankings Developed countries Source: World Bank; Qiang 2009 Developing countries Telefónica, S.A. 7
Its activity contributes to economic development in the countries where it operates through three main ways... 1. Employment 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 148,707 x 1.8 269,047 2000 2010 Telefónica, S.A. 8 Telefónica s activity is core to sustainable economic development 2. Investment on infrastructures 1 invested in Broad Band means 3 of GDP growth ** Telefónica s 2010 global CapEx mix 8,228 Mill. * 77% Recurrent 23% Growth & Transformation * Plus 2,389 M to buy spectrum and licenses **Source: The Impact of Broadband on Jobs in the German Economy, Katz et al., 2009 3. 2,398 I+D 460-7% Quality and Competitiveness of its ICT services Evolution of Telefónica s global investment in R&D+i (Mill. ) x 2.0 4,814 I+D 797 2004 2010 2004 2009 Evolution of general CPI and Communications prices in Spain: 2002-2009 IPC Source: AETIC TEF s 2010 investment in R&D+i was equivalent to 7.9% of that year s total revenues + 21% Communications
and to push to widespread use of ICT services Telefónica s push on ICT services Start-up funding Geographic Inclusion Education Inclusion. Telefónica, S.A. 9
Positive contribution of the telco sector to the overall 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
02 Sector challenges Telefónica, S.A. Telefónica, S.A. 11
The world is today a Networked Society, and it will get more and better connected every day... The new environment which Increasingly drives powerful demand 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 great digital opportunity Apps. & Services Customers Traffic Telefónica, S.A. 12 Devices From Internet of People to Internet of Things Devices And telecommunications are the basis and the enabling factor for the Networked Society Bn 50 5 0.5 0 50,000 M 1875 1900 1925 1950 1975 2000 2025 Places People Machines
offering significant opportunities for growth for the ICT industry Global accesses evolution forecast CAGR Accesses (millions) 1,739 4.1% Fixed 2,041 2010 2014 ICT Market growth forecast 2010F ICT Market size (bn US$) 7.3% 6.6% Mobile Total 5,241 6,956 6,979 8,998 1,042.9 1.3% 4.4% 916.0 2.3% 894.0 6.3% 5.4% 263.6 212.4 3,329.0 5.9% 6.1% 4.8% 4.3% 3.5% 1.5% Net adds of accesses 2010F 2014F 2,018 Mill 91% Emerging Markets 85% Mobile North -3.5% Europe Asia & Latin Middle East Worldwide CAGR 2010F 2014F Mobile Broadband: 31% Fixed Broadband: 11% America Pacific CAGR 2007-10F America and Africa CAGR 2010F-14F Source: Pyramid Research Data Forecast (Jan 2011) Source: Gartner Market Databook (Oct 2010) Telefónica, S.A. 13
Market attractiveness is reinforcing the competitive dynamic Operators Regulated Non regulated Communication s and applications Device providers Internet players Telefónica, S.A. 14
pushing us towards an unsustainable business model due to this new ecosystem Users Operators Internet Players Some users subsidy other users and traffic generators Others have to assume the increase in transport costs Some generate traffic and obtain revenues from advertising Telefónica, S.A.
Traffic and voice decoupling should be avoided Traffic Decoupling Costs Revenues Voice Data Time Telefónica, S.A. 16
Active cooperation among ICT players key to address industry challenges Telco Operators A more stable & predictable regulatory outlook New services: Wholesale Applications Community Rich Communication Suite NFC Payments and M2M Mobile advertising Device suppliers Open operating systems needed to facilitate the development of new services Wide range of device suppliers Communications and Services beyond Connectivity ecosystem Internet players New Internet Economic Model needed Retail Pricing Enhanced QoS Sustainable Internet Model Peering Interconnection Managed Services Telefónica, S.A. 17
Telcos have a key role to play in the ICT ecosystem Beyond Applications: Advanced platforms for quality service delivery Adding comprehensive connectivity & service management Payment for distribution and additional services Content, advertising, ondemand services & apps Revenue sharing Payment for segmented bundles of services Third Parties End Users Partners complementing our capabilities Telco as Service Platform Demand unified and simple services Telefónica, S.A. 18
Furthermore, digital agenda targets are demanding Universal BB 2013 100% Populatio n 30Mbps 2020 100% Populatio n 100Mbps 2020 50% Populatio n Starting Point: Spain 95% DSL coverage and 90% 3G coverage (2010) 28,7% VDSL, Cable and Fiber coverage (2010) 3% penetration cable and fiber (2010) Technologies Mobile is key New mobile technologies (LTE) are required Cable and FTTH are essential Economic Effort Important Very important Extraordinary. Demand stimulation policies needed 19
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 20
Sector challenges and demands (II): Sector specific Business models could be two-sided, based on commercial 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 21
Europe has a great opportunity to foster its positioning as a competitive region in the future to benefit all European citizens. 22