Last week it was announced that Telefonica bought the managed services business of bankrupt network integrator 2e2, taking in roughly 100 staff. The two companies had previously run a joint venture – O2 Unify – which offered network access, kit and related services under a single ICT services model.
While the acquisition may have more relevance for the UK, the move is just a small component of Telefonica’s wider plans to build out its IT services capabilities. Indeed, PAC believes that the company will be one of the most aggressive players in the European services market in the next few years.
Here are some other aspects of Telefonica’s IT services strategy:
Building one of the largest Cloud data centers in the world
Telefonica Europe may well become one of the major critical IT infrastructure management providers across Europe over the next five years. In addition to existing capacity, Telefonica is building a 78,500 sqm Tier IV data center near Madrid, which will be one of the largest data centers in the world. The center will provide a broad range of services ranging from basic hosting to virtual infrastructure management to application hosting (e.g. SAP hosting, industry-specific application hosting). The first 26,000 sqm were inaugurated in early 2013, as the first out of five roll-out phases.
Early leader in Public PaaS in Europe
Roughly one year ago, Telefonica made a strategic investment in San Francisco-based PaaS specialist Joyent. Less than nine months after the two companies shook hands, Telefonica launched its “Instant Servers” offering, which made the company one of the front runners in the nascent European Public PaaS space. The service is provisioned both from the data centers in the UK and in Spain. The velocity with which Telefonica brought to market the “Instant Servers” offering is impressive, considering that the PaaS portfolio has concrete, ready-for-consumption instance-based pricing for various application environments (eg Microsoft–based, open standards Joyent-based technologies). Selling scale around Cloud-based application development in a very transparent manner puts Telefonica in the same competitive pot with the likes of Google or Amazon.
M2M & Mobile payments: the road to verticalization
Pushing M2M and Mobile Payments is not a surprise for a company with the profile of Telefonica. The company is chasing opportunities or is already running projects that surround topics like managed connectivity, transport-based solutions and Electric Vehicles platforms, smart meters or mobile payments.
However, PAC believes that M2M and Mobile Payment domains offer Telefonica the opportunity to evolve from the infrastructure integration and management space into application and vertical specialization. The application development expertise is in an embryonic stage with some fledgling capability around healthcare and financial services. Yet compared to Telefonica’s traditional IT engagements, M2M offers the company the chance to get closer with the client, and from here to learn faster about industry-specific business process functionality. For instance, in early 2013 Telefonica launched into production a system to analyze and calculate insurance premiums for motor insurance policies at Generali Insurance Spain. This is really noteworthy considering that two years ago Telefonica was barely touching on the application domain.
Managed Mobility & UCC
As in the case of M2M, the Mobility and Collaboration opportunity comes naturally for Telefonica. With austerity measures impacting all European markets, Telefonica is in a good position to take business from local and regional IT providers that developed operations around Office & Collaboration. Much of the adoption in this area will be driven by price and economies of scale, strings that Telefonica can pull considering its size and amplitude of infrastructure investment.
The points above indicate that every large IT provider in Europe should closely watch Telefonica, as it will play an increasingly important role in the IT services market in a five years horizon. Nevertheless, there are challenges for Telefonica. One of its major drawbacks in Europe results from its uneven geographical development. While close to the top five leaders in IT services in Spain and aiming to reach top 10 in the Czech Republic, Telefonica needs to work a lot more to reach market relevance in the UK or further way more in Germany.
Telcos have a very mixed success rate in developing their IT services offerings. But if Telefonica continues to focus on specific propositions that play to its existing strengths in mobility, connectivity and scalable infrastructure, it could become a serious force.
by George Mironescu