Telefónica's CEO Thinks Mobile Should Have a Bigger Piece of the Pie

Pablo Valerio, International Business & IT Consultant | 5/31/2013 | 29 comments

Pablo Valerio
With growing costs and increasing demands on their networks, European mobile companies think that companies getting rich off their networks owe them a cut of the profits. And at least when it comes to costs, they've got a point.

European Mobile Companies spent billions of Euros during the past five years to upgrade, expand, and maintain their networks because of increased data usage. Global data traffic grew 70 percent in 2012 with that expected to continue to rise, and because Europe is a mostly mature market, new subscribers, the basic way mobile providers paid for growing networks before, have dried up. European mobile operators have also paid substantial fees to get 4G licenses, and because of the financial crisis, their revenue per customer is shrinking.

Add up these costs and the industry is not happy. Telefónica's CEO Cesar Alierta cried during the Mobile World Congress that "Internet companies are riding for free on the mobile networks," while not sharing the cost of infrastructure and continuing to offer more data-hungry services, such as HD Video.

While Telefónica acknowledged that "Mobile data revenues continued to be the main growth driver in 2012, rising 12.8% year-on-year to account for more than 34% of consolidated mobile service revenues, on the back of the rapid expansion of non-SMS data revenues (57% of total data revenues)," they believe this is not enough to compensate for the investment and support they need to improve their networks, as people and businesses are hungry for faster networks and lower prices.

Alierta thinks the mobile operators should "write the rules" of the mobile data ecosystem and regulators should not interfere. They're looking to expand their businesses in places traditionally they've been kept out of. Telefónica and other operators such as Vodafone, Orange, and T-Mobile have launched services to compete with messaging apps such as Whatsapp and Skype. Sprint and Telefónica have signed a global alliance to create one of the world's largest mobile advertising networks, aiming to offer global brands the chance to reach 370 million mobile customers across the United States, Europe, and Latin America.

However, the current advertising revenues of the operators on their own networks pale in comparison to advertising giants such as Google, Facebook and Yahoo. That's why the industry is desperate to find ways to get a bigger slice of the pie.

Ultimately, a showdown is in store. The mobile companies that have based their business model largely on the idea of ever increasing subscription numbers are finding that it is difficult to maintain margins in a largely mature market. It is highly unlikely that Internet companies that have never paid any real attention to the amount of data their offerings use up will either work to lower that data usage or share their revenues.

Mobile companies, if left alone by regulators, do have something few other Internet companies have, however: immense amounts of personal usage data and the ability to contact users directly. As this battle heats up, Internet companies need to watch to see how much leeway regulators give mobile companies to compete in spaces they've previously ignored. They may find, especially in advertising and content service, that they have new competitors they hadn't previously considered a threat. And mobile companies, if permitted, may find themselves looking to move into businesses they never thought possible a decade ago. People in the mobile and Internet space will need to watch carefully in the next few years.

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Tuscany   Telefónica's CEO Thinks Mobile Should Have a Bigger Piece of the Pie   11/30/2013 9:25:03 PM
The Big Three
Great piece on a very difficult subject to grasp. Mobile versus Data  Providers and Internet Companies.   It doesn't get much juicier than this !
batye   Telefónica's CEO Thinks Mobile Should Have a Bigger Piece of the Pie   6/3/2013 6:54:53 AM
Re: How
this days telecome Co.'s in Eastern Europe trying to get and keep customers... and a lot of the time they offer unlimited service with hidden limitations...
batye   Telefónica's CEO Thinks Mobile Should Have a Bigger Piece of the Pie   6/3/2013 1:43:26 AM
Re: the pie still big
yes, but I think for the it only starting... as technology changing they would need more upgrades and more to spend... they gonna complaine more...
Pablo Valerio   Telefónica's CEO Thinks Mobile Should Have a Bigger Piece of the Pie   6/1/2013 10:13:13 AM
Re: the pie still big
@Umair, there is one big reason: infrastructure! if they could just bill people for more data with the existing towers and 3G service, they'll do it.

But mobile data traffic is supposed to grow ten fold in the next three years and they need to upgrade the network and install many new towers, plus high-speed fiber, to handle that; plus paying new license fees for 4G/LTE and taxes. That's why they are complaining.
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Umair Ahmed   Telefónica's CEO Thinks Mobile Should Have a Bigger Piece of the Pie   5/31/2013 8:39:47 PM
Re: How
If you have an "all you can eat" sign on your restaurant window, don't whine when Takeru Kobayashi walks in.

@ Joe: Haha! Another great example, perfectly fits here. These sort of signs create Takeru Kobayashi.
zerox203   Telefónica's CEO Thinks Mobile Should Have a Bigger Piece of the Pie   5/31/2013 8:38:26 PM
Re: How
Also a good point, and at certain point we're just picking apart semantics, but still - Isn't there still a hole in that analogy? I mean, for starters, people who run all you can eat restaraunts give angry looks to customers who stay too long all the time, and try every trick in the book to subtely get them to eat less, like refilling their water constantly, so that's just par for the course as well, right? Even if they know they don't have any legal wriggle room, telecoms are going to complain if they feel like they're not getting a good value (which is all the time), because... why not?

Even moreso though, they might really have a point here. There's an intermediary here. They're offering you and I unlimited data, and they're not going to complain about the frequency with which we use it - but that's not the problem. The people we're getting it FROM are using too much because the cost doesn't come back to them. I don't know where that fits in the buffet or lumberjack analogy - maybe feeding your dog under the table or something.
Umair Ahmed   Telefónica's CEO Thinks Mobile Should Have a Bigger Piece of the Pie   5/31/2013 7:55:50 PM
Re: the pie still big
there are no unlimited data plans anymore

@ Pablo: If there are no unlimited data plans, then why the operators are concerned about increased data usage and data hungry services? Customers are paying for what they use.
Umair Ahmed   Telefónica's CEO Thinks Mobile Should Have a Bigger Piece of the Pie   5/31/2013 7:47:44 PM
Re: How
@ Pablo: As you mentioned that all of the telecom industry is facing the similar circumstances and unable to improve the network in the current scenario. Then what is preventing the service providers from increasing the prices, is it a possible government intervention or the threat of losing customer base? Mobile data usage will keep growing, and in relation to the current trends and usage patterns, do you think that rise in price can result any significant loss in volume?
Joe Stanganelli   Telefónica's CEO Thinks Mobile Should Have a Bigger Piece of the Pie   5/31/2013 7:21:06 PM
Re: How
Of course, most lumberjacks wouldn't be stupid enough to offer "unlimited" lumber...unless they REALLY meant it.

If you have an "all you can eat" sign on your restaurant window, don't whine when Takeru Kobayashi walks in.
zerox203   Telefónica's CEO Thinks Mobile Should Have a Bigger Piece of the Pie   5/31/2013 6:46:47 PM
Re: How

This IS a good analogy, and I'm pretty sure up until this point, that's what's carried the case against the mobile providers. Free market means free market, and that means if you get into an industry where the investment/profit system is not straightforward and you have to follow different rules, then you have to roll with the punches. I wouldn't put it past mobile carriers to just make an excuse to avoid ever having to this in the first place either, so dont' get me wrong.

However, on that same note, every industry is regulated to some degree, so most of us can agree that there's a reasonable limit. If the New York Times could continuously print papers and the lumberjacks would automatically be forced to keep up with the demand without their consent, then I imagine we would have a problem on that front. If you're investing in something with a fixed amount of dollars, but the amount it could end up costing is literally 'unlimited', you might have reason to be worried.
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