Telefónica Digital - A pity (for Spain)

A couple of weeks ago we got the news that César Alierta (Telefónica's Chairman) had decided to restructure the company (Article in El País in Spanish). Telefónica became structured in 4 main divisions: Latam & Europe, General Resources & Digital.

Yesterday the news where that Telefónica had made public the names of the second layer of managment, the people below the heads of the four divisions. (El Economista in Spanish). I was quite happy to see an old school friend there, and also to see a spaniard as head of Product Development and Innovation under Mr. Key.

I haven't seen any reactions yet to yesterday's news. Two weeks ago the first thing I read in twitter was a Spanish ex-minister asking if we should be worried about Telefónica moving its HQ out of Spain. Typical comment by someone that just wants to put the public opinion against Telefónica and Alierta. It is true that there is always that risk, but for the time being I don't think it is realistic to consider it.

However, something dramatic for Spain happened. Almost as important in the long term as having the HQ of Telefónica moved out of Madrid: the new Digital division, that is in charge of all digital services, Internet and innovation (that is, everything that gives money to the company apart from voice, basically) will be headquartered in London and under Matthew Key.

What does this mean? It means that all new revenue streams will come from UK. All innovation, all new ideas will controlled by UK. All decisions regarding R&D will come from UK. Many projects will still be deveoped in Spain and other countries... but the weight of that division is in UK.

Why would Alierta do that? He had no need to do it, he wasn't forced to. If he has made that decision it is because he believes its the best for the company. There are rumors of the reasons but I won't get into them... but the fact is that he has done it and Digital is now in UK.

We must not forget that, unfortunately for them, carriers are currently followers in innovation, not leaders. Their fight (at least in Spain) is to offer more bandwidth or better prices. However, all service and product innovation has been taken out of their hands by the Apples, Googles, Facebooks, Samsungs, RIMs... etc.

I think carriers are making repeated mistakes. They are launching projects that lead nowhere because either they haven't been thought thoroughly or because they are born without leadership in mind.

If you are Telefónica and you decide to launch an ebook, its not to put another piece of hardware in an already competitive market... its to offer a whole package of services and a radically different experience to your clients. You are Telefónica, you can do it... you have the cash, you have the people and you have the position in the market needed to align all players in order to offer a successful service. If you launch an ebook its because you want to compete with Amazon, not to make a press release and forget about it. That would mean you've thrown down the drain several million euros during the project and, honestly, you shouldn't want that. If you do it, why don't you do it well? (May seem stupid to quote a green fiction character but.. "Do or do not, there is no try".)

If you are Telefónica you have the research and should have the insights to decide not to launch a project like Keteke and throw down the drain over 10 million euros. Seriously, who didn't see that coming when the project was launched? And in order correct the error you decide to buy another social network for 70 million euros? I think that was another mistake... not for Tuenti, which is a great company and seems to be doing well, but for strategic reasons I may talk about some other time.

If to the above (and some other things) you add that Mr. Key must have done a couple of things correctly... the result is that he has received all digital businesses. It's a prize and Alierta seems to have realised that you need a way of thinking, a way of doing things that here in Spain, unfortunately, it isn't possible yet. Maybe it's a saxon, a british or an english mentality. Maybe it's still the heirloom of the many years Telefónica was a state-owned company.... but something doesn't work.

A few days ago I was saying (check post) that Managers and Directors don't seem to understand the Market and their role in it... sometimes it seems that they are running (because they are, they don't stop doing things, there are many people working really hard) but they do so like headless chickens. In a company such as Telefónica, if they really want to compete with Google, Facebook, Yahoo, etc. they need to wake up. They need to speed up processes to the limit, they need to stop thinking about present revenue streams and how to keep them at current levels and start thinking about what is needed for the future, independently of the current situation.

SMS are dead, revenues will go down and in a few years will disappear. Forget them, full point. Have a small team working on them to manage and try to keep the service alive as long as possible but put all your efforts on developing new revenue streams that will compensate for the loss... without legacies, without barriers, total innovation. Be quicker than Whatsapp, Viber, Skype... See where alliances with other carriers are possible and needed to compete with Apple or Google... because the greatest danger for a carrier today isn't other carriers... its Apple & Google.

Because the threat isn't losing some users to the other carriers... the real threat is that Apple manages to take control of the SIM, starts to offer data plans with roaming for a flat fee and takes all that revenue (and that would really be a lot of revenue) from the carriers. The real threat is that Google launches a MVNO throughout Europe. Just imagine that voice becomes Facetime, SMS becomes iChat... no more voice calls, no more SMS... the carriers would suffer.

Telefónica needs to be able to launch an App Store in just two months after Apple does it. It needs to be able to launch and adapt a social network at the same speed as Facebook is reacting and adapting its own service taking Google+ and Twitter's best functionalities. Needs to be able to compete with Whatsapp in a few weeks and not launch over-dimensioned projects that take months to specify, months to select providers, months to develop, months to integrate, then a pilot, then make a final revision and finally release it. By then Whatsapp, Apple's Chat, Google's one will be all over the place and yours will crash into a concrete wall.

You have 10.000 million euros net profit... what are you waiting for to bang the fist on the table and straighten things out? The changes in the past 3 weeks are the beginning, but they shouldnt stop there!

The pity for Spain, for Spanish engineers and developers, for Spanish technology companies, is that Digital's HQ are now in London.