Something had to give.
Although Telefónica became Europe’s largest operator in revenue terms last year and has been lauded, rightly, for its innovative approach to new services with the launch of Telefónica Digital, its financial performance continues to cause concern.
While its Latin American businesses continue to drive revenue as sales in Europe decline rapidly, cracks are appearing; in Brazil, the company’s second largest market, revenues fell both q-o-q and y-o-y in Q2.
As is so often the case when growth in large enterprises begins to fall away, executives begin to concentrate on looking inside rather than outside the business.
It is these factors that led Telefónica to announce last week that it had signed up Alcatel-Lucent, ironically a company that is going through turmoil of its own currently, to transform its disparate global network management systems into a single software platform.
"Together, over the course of the next few years, we will achieve a new level of harmony and consistency that will make us more agile and efficient in managing our networks to respond to our customers' needs, to improve service quality and offer the highest availability with customer-focused, integrated processes," promised Telefónica CTO Enrique Blanco.
It is worth recapping at this point just how big Telefónica has become – it has in excess of 309 million customers in 25 countries and 287,000 staff.
Analysys Mason’s Larry Goldman told European Communications that the project was groundbreaking in both scope and scale.
“Telefónica is a big complicated operator and it has run its many different businesses separately,” he said.
“The tendency is always to leave things running as they are but there is now more expectation that the pay off [from a transformation of this kind] can outweigh the risks.”
So what’s going to happen?
A-L will design, build and deploy a single service assurance platform, while both companies will combine their knowledge, best practice and operating procedures to standardize network management.
The aim is to reduce opex, streamline operations, improve response times for the resolution of network issues and enable more agile service delivery to customers.
Crucially, disruption to existing services must be kept to a minimum.
“It doesn’t matter what your hopes are for the future if things go awry in the present,” warned Goldman.
The job of managing this project has fallen on Chris Wade, A-L’s head of OSS.
“There is no typical reference point for a job of this size,” he lamented when European Communications spoke to him this week.
“Telefónica don’t manage their exisiting infrastructure in the same way in the various different countries and they have a mix of technology,” he explained.
However, technology is the least of his worries.
“The tech part is the easy part; it is people that are hard. Intellectual property is a key aspect of the entire deal and we are working with Telefónica’s core team to gather the requirements of each individual country. The solution will then be deployed all at once rather than on a country by country basis.”
Wade added that three countries – Costa Rica, Ecuador and Uruguay – were not being considered as part of the overall project due to concerns over return on investment.
Goldman agrees getting the staff onside from the outset is key.
“The overall business objective must be one that everyone buys into and shares – they need to be willing to change,” he said.
“Ultimately there will be job losses as well, but that’s an inevitable part of running things more efficiently.”
Wade said the reaction of workers to such an outcome was a concern.
“We can’t make exceptions [for individual people or countries] and one of the main things we’re focusing on is the requirements of countries that operate differently.”
Undoubtedly there will be pain but Wade said the benefits would be worth it.
Opex reduction would be “substantial” while Telefónica should find that launching new products and services or integrating acquisitions across multiple geographies will be “easy”.
Measuring customer satisfaction would be harder, according to Goldman.
“This is a hard thing to do but they have to find some way of proving they are delivering better customer experience around network reliability and problem resolution.”
The results of this project would be measured in a three to five year timeframe, Goldman added, which is unlikely assuage the fears of financial markets.
Whatever the outcome for Telefónica, both Goldman and Wade agree this is a very significant deal for A-L.
The France-based vendor is undergoing a painful transformation as it looks to return to growth.
“This deal is huge for A-L as it raises its profile as someone who can solve problems for operators,” said Goldman.
“They have a long history of providing such services but this is most visible example and it says good things about the future of their business.”
It is early days but this could be that rare thing – a win-win for two European telcos.
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