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Telefonica dates back to the early 1920s when Compania Telefonica Nacional de Espana (CTNE) was founded to coordinate Spain’s telephone system. For the next 90 years it held a monopoly in the telecommunications sector following a model that has been mirrored in other developed countries. The magnificent headquarters building it completed in the centre of Madrid in 1929 was Europe’s first true skyscraper, and still looks down over the capital, a symbol of the dominant position the company held in the economy.
It has done everything expected of a major telecommunications provider, rolling out a fixed line network throughout the country, moving into mobile, broadband, subscriber TV services and wireless technology and competing effectively in global markets. In 1999 the company became public again and it is 100 percent listed with more than 1.5 million direct shareholders. It has operations in over 20 countries across Europe and Latin America and serves more than 319 million customers. Its name still stands above that skyscraper but today the headquarters is in its equally impressive, futuristic, all-glass, 140,000 square metre Distrito Telefonica in Las Tablas to the north of Madrid and linked to the city via the Metro.
Its buildings reflect the new reality for what used to be called a telecommunications company or telco, but should today be referred to as a communications service provider (CSP). No longer does it have a monopoly in any jurisdiction, and though its fixed and mobile telephone networks are still part of its core business, it is increasingly having to bundle in new services as customers turn to ‘content’ heavy entertainment, video and internet based packages.
These new services are increasingly provided by a new breed of digital company, smart and highly responsive to the market. Operating over the top of mobile, satellite and fixed line connectivity such companies increasingly exist on the internet without any burden of infrastructure. At the same time, in this digital world CSPs like Telefonica still keep responsibility for maintaining and extending the networks they own. Even today most of Telefonica’s revenues (over €50 billion in 2014) still come from ‘traditional’ fixed and mobile subscriber services and it has been difficult to move on from the monopoly and public service mindset responsibility and into the digital application and data age.
The shift from monopoly to an increasingly deregulated market has not been without pain. The market has largely been opened up by regulation to stimulate competition, for example forcing fibre-optic network owners to allow access to ‘dark fibre’ capacity. Nevertheless the incumbent companies are still required to invest in and expand their LTE broadband, fibre and wireless networks. Network sharing is leading to ‘commoditisation’ of the networks, meaning they are becoming less of a differentiator for the CSPs and need rather to differentiate with the services and experiences that run over the networks. This leaves a strategic conundrum: the market is getting diluted and less of the money is coming their way as entry barriers come down and upstart start-ups capture not only services they have just invented, but much of the old fashioned voice traffic too.
The communications market is already saturated in most jurisdictions, which means that it is hard to grow in the old way, by connecting new subscribers. Growth has to come through greater attention to customers, who have begun to appreciate a wide range of converged products and services that can enable their mobile, always-connected lifestyles. With little in the way of overheads, a generation of voice carriers have brought innovation from outside the telco sector into the value chain. For example the VOIP technology used by Skype and others, and image transfer and messaging services like WhatsApp and Snapchat, not to mention the likes of Facebook and Twitter, have destroyed value at the core business of CSPs like Telefonica.
As a result of all of this, revenues have been under pressure. The recession has played its part in this but the underlying reasons are as outlined, and there is no way a company like Telefonica is going to sit back and watch its bottom line contract. The problem is that, from the relatively simple business model that existed before the digital age dawned (only really 20 years ago) and the exponential rise in internet and wireless-enabled applications and channels of communication started, the field has become extremely complex.
Thinking and rethinking
Capturing the growth over the last 15 years in the telecommunications sector, CSPs have been constantly adapting and evolving with complex engineering and business management fixes. Take the concept of quad-play, which customers now expect and operators aim to provide in a seamless way. As the four components of voice, broadband, wireless services and TV were bundled for the consumer, the fact that they evolved at different rates on different platforms was reflected within the business: one service to the customer but still four different functions in the back office. Today technology is coming along far faster than it can be developed in-house and incorporated into the customer offering.
The customer is sold a package or a bundle of services: it looks like a single product, but when they call up about their bill, or to ask for technical help with broadband, it is still possible that the response will not recognise that they also signed up for TV. The way the services that have been added or acquired by the business has also led to the existence of silos and duplication within the back office. Customers, in short, need to move seamlessly between all customer interaction channels across the company’s entire quad-play offering – fixed line, mobile, internet and TV.
That is why Telefonica has developed a bold global IT transformation strategy. It involves thinking about IT in a different way. “Of course networks have always been important to us and remain our number one asset, but IT has become mission critical,” says Phil Jordan, Telefónica’s CIO. “It is driving our business to be digital in its DNA, creating multi-channel digital experiences, and also creating world-class virtual shared infrastructures right across the group.” From being a background enabler to record data and run internal systems, IT has become the key differentiator of the business allowing real convergence of these business support systems (BSS) without complex back office integration. It is, Jordan says, the only way to bring together all of the products and services Telefónica offers right across its global operations and delivers a digital experience for our customers at the same time, enabling it to maximise its potential to get a fair return in the new digital value chain. For the customers, access through a single digital interface, wherever they want and in a personalised way, is what they will keep them on board in a world where brand loyalty hardly exists anymore!
So Telefonica had to take decisive action. It could have continued to evolve as it has successfully done for decades, making small incremental changes and developing new business processes from scratch, or it could scan the industry to enable a transformation, looking for new technology that is built on standardised processes developed specifically for the sector. These do exist, having been built to standards defined and maintained since the collaborative TM Forum was formed in 1988.
Telefonica's strategy is to push parallel change in technology, organisation, and process, impacting the whole company in countries that are part of the transformation. The main systems therefore will be replaced by pre-integrated best-of-suite solutions. The strategy will be to adhere to and adopt such out-of-the box functionality, changing it only if absolutely necessary, minimising customisation to ensure a faster transformation and make future evolution easier.
This change and transformation process across an organisation the size of Telefonica will mean embracing risk – and a considerable amount of rethinking. But when done, it will leapfrog the company to the current state of the market and fit it to meet future developments (the speed of innovation means it’s pointless to predict). It will place Telefónica ahead of its peers. In place of evolution and always catching up, radical transformation presents the opportunity to stay ahead all of the time, getting to the market with new products before the competition.
Analogous to a manufacturing company going lean, it will mean focusing on digital and real-time customer experiences and automating manual operations, inputs and interfaces – with opportunities to redeploy staff into areas of future differentiation. People will need to abandon their old operating practices and learn new ones. “This is a complete culture change, not focused only on processes but on business outcomes, taking a single view of the customer and using IT as an enabler for data differentiation in a digital world,” says Phil Jordan.
The strategy is company-wide though the timing will differ from country to country. Currently the transformation is happening in 15 operating businesses (OBs), in each case led by its CEO. This change is of course an intensive learning process too – what works best will be shared as the process continues, a practice known as re-use, to avoid making the same mistakes more than once. Out-of-the-box solutions are being acquired. These are plug-and-play IT solutions that incorporate both standardised BSS methodologies and best of breed solutions. Adopting greenfield solutions and standardised technology means that upgrading will be done through the vendor’s regular new releases of the software. What is lost in functionality is gained in speed. The result? The twin peaks of automation and convergence. A leaner and simpler business. Telefonica will be able to use the R&D capabilities of these vendors to evolve its own business in a faster and more consistent way.
The Argentina OB Telefonica de Argentina, the largest fixed-line operator in the country, was a pioneer in the transformation. This is a country where inflation and the macroeconomic situation are significantly shaping and changing the market, so becoming much leaner and more automated is imperative just to stay competitive. Telefónica’s OBs all have different reasons for having to transform. In some it is the incumbent provider offering quad play; in others it is snapping at the heels of another incumbent; in some it is a pure mobile provider; in Latin America the bulk of the market is prepaid. Some, like Argentina, are transforming ahead of the curve to meet new market challenges. In others it has to react fast in a situation where it lacks the capacity to complete. But they all have compelling reasons, and all share the vision of being part of the world’s leading digital CSP.
Argentina is on track to become the first structurally integrated digital Telefonica business in the coming months, offering a model of what the strategy can achieve over the entire global business, with all of Telefonica’s Latin American companies now in the change process. “Each OB will own and manage its own transformation process,” says Jordan, “with close adherence to standards and reuse to maximise the scale and knowledge of our global business.” Reuse is thus a strong feature when Chile, Peru, Brazil, Mexico, Colombia and the other Latin American OBs implement, enabling them to complete the process in less time than it took Argentina.
A business transformed by IT
Transformation is a bumpy ride, and Telefonica has prepared for it by simplifying radically. More than 2,000 systems have been dispensed with across the business already and a further 1,500 will be replaced with out of the box solutions. The business is focusing on practices that can be automated and cutting out those that don’t add value. The culture change does not conflict with basic business principles and established best practices.
Breaking down silos in the organisation should lead to a holistic approach to the market. What is happening to the telcos is reflected in other sectors, and Telefonica has been studying disruptions caused by platforms like Google and Facebook in the financial world as well. There is little difference, and the banks’ coping strategies will possibly prove a benchmark for the telcos – though there’s no sign that the banking industry is making any changes similar to those of Telefonica.
The banks have their branches, the telecoms companies their networks. If the entire value chain of a CSP rests on its network it is no more than a commodity provider; essentially just a utility company. The telecoms value chain is huge and expanding, and though Telefonica knows it can’t command 100 percent of that value, through partnership it can participate in the greater part of it. Of course for a company that used to be the only game in town for its customers and suppliers alike, partnership has not been part of the culture.
Playing in a global market, CSPs need to collaborate with vigorous and powerful digital companies. That’s another reason to reduce internal complexity. It will have to learn to be quick on its feet in seeking out the best of these and to partner with them speedily, something technical people are used to doing but traditional businesses and their legal teams struggle with.
Partners in the plan
This leads us to the partners that Telefonica chose to deliver the global IT transformation. The usual suspects, the traditional IT giants like IBM, Oracle or SAP are cross sectorial, and though Telefonica is a giant in its own right, it felt it would be better served by an industry partner, one whose stock would fall or rise in direct relationship to a top five global telecoms service provider. After all they were not looking for an IT supplier, but a true partner, a full stack provider, and someone who can transform the Telefónica business while integrating wireless, TV and fixed line solutions seamlessly. It chose not one but three, all with great strengths in the sector.
These were Amdocs, a leading provider of customer experience solutions to more than 250 communications, media and entertainment service providers in more than 80 countries; Huawei, a Global Fortune 500 ICT solution leader service to more than 500 operators in 170 countries; and NetCracker Technology, a proven partner for end-to-end BSS, OSS and SDN/NFV solutions to hundreds of service providers around the world. For each of these companies, an alliance with Telefonica was much more than just another contract, more a strategic alliance. They all understand that the future of telecommunications is in the IT space and are preparing for the next disruptions in the market, which may be the internet of things (IoT), or machine to machine (M2M) that allow wireless and wired systems to communicate with other devices of the same type. With smart homes and smart cities already a reality, though in their infancy, the need for CSOs to participate is apparent.
These companies were picked because they are trusted in the CSP IT space, the reliability of their solutions, and based on Telefonica’s ability to influence them. It is about evolving the partnership model so that they can gain influence and power in their own product roadmaps, shape the solution to their needs, and at the end of the day reshape industry standards.
These ‘prime relationship technology companies’ have the capability required to enable Telefonica’s IT-enabled business and process transformation. They will standardise BSS platforms and associated business processes, support convergent services, improve customer experience and speed up the process of getting new or enhanced services to the market. Pre-integrated BSS platforms and professional services will quickly replace existing legacy systems and drive process standardisation across multiple operators. The solutions are scalable and lend themselves to re-use in multiple markets.
NetCracker Technology has proven its solution innovation and implementation capabilities through numerous awards and consecutive CMMI Level 5 certifications. It is a wholly owned subsidiary of NEC Corporation. Huawei, a global ICT leader, has presented itself as is a key player in digital transformation with its ambitious Telco OS solution. Both NetCracker and Huawei are major players in digital transformation programs that leverage next-generation BSS, OSS and big data to support digital business operations and both are keen to expand their footprint in western markets, so the partnership offers benefits in both directions.
The same is true for Amdocs, a global company headquartered in the USA, which combines market-leading BSS, OSS and network control and optimisation product portfolio with value-driven professional services and managed services operations to touch every aspect of the customer experience. It has progressively worked with Telefonica Argentina, Telefonica Chile, Telefonica Peru and Telefonica Brazil’s Vivo brand on major transformation initiatives over a number of years.
The transformation started in Argentina in 2013. As already stated, the process should be complete there by the middle of 2016. Mexico, Uruguay, Brazil, Chile, Peru and Uruguay started during 2014 and Colombia, the Central American countries and Ecuador are starting this year. All of them will have transformed completely by the end of 2018. This root and branch BSS transformation, it should be noted, is taking place without any break in Telefonica’s day-to-day operations.
At the end of the transformation, Phil Jordan concludes, the businesses will be able to operate in real time, (as opposed in batches or with delayed delivery), with online, converged and automated processes that will dramatically improve the business agility and reduce errors. “The transformation brings a complete 360 degree view of our customers with comprehensive and homogenous information that will help us to understand their needs and deliver the best products for them through an omnichannel experience. Thanks to the structured data-centric solution, we are enabling data monetisation, predictive analytics and insight driven differentiation.”
Additional business benefits that will be achieved include the simplification and efficiency of the ‘cost-to-serve’ by shrinking the back-office, and reducing billing errors and consequent c calls to the contact centre as First Call Resolution becomes the norm. As a result, costs will fall and revenues and margins will grow and stabilise. “We’ll stay focused on our customers while this transformation is happening. Service will reach a level we haven’t been able to reach before. The disruption will be worth it when customers start to notice the positive differences as they engage with us in a fully digital and integrated business.”