Telefónica's mobile phone business in Spain faces stiff competition and pressure to lower prices. The document analyzes market trends showing competitors gaining share through aggressive campaigns and subsidies. It recommends Telefónica invest in expanding its 4G network nationwide and focus on acquiring customers through differentiated, high-value services to maintain its leadership position.

1. Date: 11 October 2013
To: Mr. Cesar Alierta Izuel, President & CEO
TELEFONICA (TE)
From: Oscar Olivo Fuentes
Corporate Strategy Group
RE: Strategic Analysis
Introduction.
In response to the current economic situation or as vd and forward in the shareholders'
meeting where they presented the results of the company's past financial year 2012, please
allow me to convey to strategic analysis exercise where you can pick up some tips.
Without going to make an assessment of the company's overall corporate, I would focus the
analysis on line mobile phone business in Spain (Movistar trademark).
2012 has been characterized by heterogeneity in the growth of the world economy, in which
the differences between developed and emerging countries continued to widen. The markets
in which Telefónica presented different behaviors with a Latin American economic growth of
3%, while Europe's GDP declined by 0.2%.
In particular, in the Eurozone, there were substantial institutional progress not only
reflect a high commitment to the continuity of the process of European integration, but also
with a reform agend that lays the foundation for strong growth in the near future.
Specifically, in Spain, there have been significant advances in 2012, where commitments have
the dual purpose of ensuring debt sustainability, and to implement an ambitious reform plan
relaxing the economy and result in more growth potential the medium term.
In spite of the unfavorable conditions in some markets, both economic and
competitive and regulatory Telefónica revenue stood at the whole year EUR 62.356 million,
0.8% lower than in 2011.
As a result of significant customer impulse contract and fixed and mobile broadband, the
customer base grew 3% year on year, reaching almost 316 million customers in our markets.
Competitive position
Focusing on data changes in the number of mobile phone lines in Spain in the period 20002013 (millions of lines)

2. According to June 2013 figures, the number of mobile phone lines for personal communication
was 51,927,748, with the penetration rate of 112.4 lines per 100 inhabitants. Total lines
telemetry services (M2M) was 2,969,232, making a total of 54,896,980 operating line. In
personal lines, corresponding to 16,300,065 prepaid billing system, 33.40443 million postpaid
(also called contracts), and 2,223,253 to Datacards.
There are four operators with their own network (ie, they manage their own mobile phone
masts), although the last to arrive (Yoigo / Telstra), has an agreement to use movistar network
also, because it still is deploying its own network. There are also a number of mobile virtual
network operators of around twenty.
The mobile phone market in Spain in December 2011 it formed the following list of operators.
53,066,828 total active lines.
With home network
• Movistar (Telefonica subsidiary), 38.24%;
• Vodafone Spain (subsidiary of Vodafone), 28.42%;
• Orange Spain (subsidiary of Orange), 20.21%;
• Yoigo (TeliaSonera subsidiary), 5.19%;
OMVs
The Spanish OMV had a December 31, 2011 a total of 3,592,757 lines (6.76% of total). The
most important, in terms of customers, are:
• LycaMobile, operating under Vodafone coverage, with 646 014 lines.
• Symi Orange operates under coverage, with 558 949 lines.
• Lebara Mobile, operating under Vodafone coverage, with 460 358 lines.
• Llamaya, operating under Orange coverage, with 270 842 lines.
• Digimobil operating under Movistar coverage, with 263 339 lines.
• Euskaltel, operating under Vodafone coverage, with 251 888 lines.

3. Currently, Spanish subscribers use the GSM digital standard, used by all European operators. It
is also in use the UMTS standard for 3G mobile telephony, for which license have all operators,
and since June 2013, the various operators are progressively introducing LTE 4G mobile phone.
All operators have implemented in their networks, with greater or lesser extent of coverage,
the various existing standards for data transmission known as GPRS and EDGE mobile 2G and
W-CDMA and HSPA in 3G mobile.
Spain is among the European Union countries with greater extent and quality of coverage,
according to a study by the Ministry of Industry, 2006, 98% of Spanish territory has GSM
coverage, ahead of countries like France, Italy or Germany
After much uproar in 2013, the 4 major Spanish companies (Vodafone, Orange, Movistar and
Yoigo) to deploy the first 4G services first among the large urban cities
In May we started a "war" between Yoigo and Orange to see who throws the line faster 4G.
The big surprise was Vodafone, who said nothing , to the first week in May said it would
implement the 4G service for 7 large cities in June of this year , making it the first operator to
offer 4G mobile speeds to 150Mbps Spain . The cities to enjoy 4G from June are: Madrid ,
Barcelona , Valencia , Bilbao , Seville , Malaga and Palma de Mallorca . Adapting to new lines in
these 7 cities 4G has cost an investment of 12,000 million euros by Vodafone , Movistar and
Yoigo recently announced an agreement between the two companies roaming extension and
use of technologies for each other , giving the possibility Movistar users use Yoigo 's 4G
network , and Telstra users using optical Friba network Movistar , thus Movistar offer 4G
services from 2013 as well as its other competitors. Orange will launch its 4G network and
Yoigo July 8 July 18 , while Vodafone is available from June 3 .
Moreover, in 2000 the CMT also regulated the number portability process by which a
subscriber can change his company keeping their phone number and completely free. Since
the launch of the procedure until April 2007, more than 9 million customers have switched
operators, as much of the entire European Union. Reference Serve the importance of this
procedure the number of customers who switched operator between June 2006 and 2007:
3,957,556 lines, about 10% of the total, according to the annual report of the CMT.
Market Commission (CMT) has approved a Circular Reference Entity established mobile
network, which handles portability in fixed network, through which all mobile operators can
access a number of interfaces common and will be responsible for recording the portability
requests, incidents occurring during the process and transactions. In this architecture, the CMT
will have a monitoring interface, allowing you to access all the information stored in the
Reference Entity (ongoing processes, statistics, state of the numbering) and ensure that
procedures are developed properly portability.

4. Personal Lines imported and exported, according to November 2008. Source: CMT
Operator
Exported (lost)
Imported (won)
Movistar
110.663
106.721
Vodafone
100.997
79.480
74.517
86.546
Yoigo
7.699
15.243
Omv´s
9.629
15.515
Orange
You could say that this is the period of most rapid change in the history of our industry. Just as
an example to mention that in 2012 mobile penetration reached 90% worldwide, with growth
of Smartphones users 42%. Despite this rapid growth, only 17% of mobile customers have
smartphones, which shows the enormous growth potential presented ahead. Figure 2
Industry Analysis.
The Spanish market of mobile phones has been historically characterized by reduced
competition, especially at the price of calls, as evidenced by its history (it was monopoly until
1995) and of the statements made on numerous occasions by consumer associations, the own
regulatory body, the Commission for the Telecommunications Market and even the National
Court in one of its decisions has called the market "tight oligopoly".

5. Spanish Market sharing by total personal lines, according to February 2011. Source: CMT.
Spanish market increase by total number of new personal lines, according to March 2009.
Source: CMT.
But the current trend shows that competitors are gradually gaining more market share due to
regulatory changes, expansion and operation spectrum primarily due to aggressive publicity
campaigns and make the customer, so far faithful to brand, is silvered change Mobile phone
operator.
No doubt, many of these consequences are the terminal funding policies. Telefonica and
Vodafone decided to stop economic assistance in the purchase of these devices. Orange, as

6. the third largest company in the market, decided to maintain the policy and has been a big
winner on this decision the best results for customer acquisition portability. Figure 1 and 4
Very to consider is the entry into the MVNO market with very competitive prices that make
your customer acquisition focus especially on the younger population.
For business lines, Telefónica maintains its leadership role by conducting customer loyalty
policy, either by adjusting prices, with discounts or company providing global solutions.
Conclusion
As a leading company in the telecommunications sector, Telefónica is and should be leveraged
engine of the economy and the industry in which it operates.
But we should not miss the opportunity to secure this position. Quite the contrary should go
for ambitious business strategies that make them attractive commercial offers to continue
gaining market share. Must use its corporate capabilities, organizational and funding to
maintain and even improve their position. Figure 3
However, it is unquestionable stiff competition and consumer demand for lower prices posed
a problem for Telefónica in the future.
It should make a strong commitment to customer acquisition and invest in 4G coverage this
infrastructure deployed throughout the national territory. The alliance with Telstra in this
regard must be secured and more so narrow. Considering the life cycle analysis of Figure 5
Also you should bet to preserve the competitive advantage by offering a broad portfolio, but
simplified, high-value services that make differentiate themselves from competitors in quality
service delivery. Given its position, Telefonica to be a benchmark company and market
differentiation. Figure 6
As described above the competitive advantage that has taken advantage may be at serious risk
if you opt for strategic shift aimed at simplifying basically commercial, making this a great
value choice for customers and drive cultural change that puts the customer at the center of
daily work, feeling this fundamental maxim for the Company. This process must be the result
of the belief that only through customer satisfaction and building strong relationships of trust
can achieve the growth objectives that the Company be dialed.

7. Competitor positions.
What drives the competitor
What the competitor is doing
or is capable of doing
• Objective: Gain market share
in Mobile Telephony as well as
provide value-added services.
• Enlarge the smartphone
market
• Strategy: Establish a
competitive quotation.
• Capturing market through
attractive advertising
campaigns
• Assumption: Competitors
wish to stand as an
alternative operator service
withportfolio and highly
varied quality
• Assumption: Competitors
have technological resources
to provide the services
offered by themselves
• Assumption: Competitors are
able to offer the same range
of services with lower prices
• Resources and capacities:
Large financial backing of
multinational
• Orange: trade policy of
financing the purchase of
mobile terminals.
• Yoigo: heavy investment in
infrastructure to provide 4G
network coverage..
• OMV, s: Strategic Business
Plans tight on money
Figure 1 Competitor positions

8. Industry Analysis
Figure 2 Enviroment Analysis

9. Figure 3 Capabilities Analysis

10. Entry
•
•
Known and predictable barriers without changes in the telecommunications
market..
Procurement and sale of services through Internet
Suppliers
•
•
•
New distribution channels
through department stores.
Settlement of the
distribution chain and sale
nationwide
Global agreements to exploit
information technology
suppliers to ensure service
delivery, developing new
technologies and SW and
maintaining the same
Buyers
Rivalry
•
•
•
High rivalry in an industry overexploited
Large number of small companies in addition begin to
take market share from larger companies
Telefónica maintained in recent years the market
leadership position, and is the main objective of its
competitors to detract customers
•
Substitutes and
Complements
•
•
•
Free smartrphones Sale
Multibrand Services Sale
Overall operating agreements, cloud
computing, ...
Figure 4 Five Forces Analysis
Figure 5. Competitive Life Cycle Analysis
•
Although the saturation
of the market, customers
are always willing to
answer a good shopping.
Customers, especially the
younger ones, want to be
always aligned with the
latest trends in
technology “state-of-theart”

11. 30000000
COMPETITIVE SCOPE
25000000
20000000
15000000
Movistar
Orange
10000000
OMV´s
Vodafone
5000000
Yoigo
0
-5
0
5
-5000000
10
15
20
NUMBER OF
LINES COMPANY
25
30
Millions
Figure 6. Distribution of number of lines in strategic map
REFERENCES..
1.
2.
3.
4.
5.
6.
7.
8.
9.
www.telefonica.es
www.telefonica.com
www.cmt.es. Informe trimestral 2013
www.cnmv.es
www.vodafone.com
www.orange.com
www.yoigo.es
Observatorio Red.es
://www.cincodias.com/articulo/empresas/telefonia-movil-espana-sufrio-abrilmayor-caida-historia/20120616cdscdiemp_1/

12. Oscar Olivo Fuentes
Service Manager Consultoría TI
Móvil: +34 638 495 74
oolivo@aventia.com
www.aventia.com