Telefonica: Past, Present and Future

 

Telefonica is a Spanish broadband and telecommunications provider with operations in Europe, Asia, North America and Latin America. It is one of the largest telecommunications companies in the world. Recently, ZTE Technologies interviewed Enrique Blanco, Global CTO of Telefonica. With over 30 years of experience at Telefonica, he shared with us Telefonica’s experience in multinational operation. Facing the intense competition in the industry, he revealed Telefonica’s goal of transforming to a video company and strategic plan of building the best network. He also talked about his expectation for the whole industry and ZTE.

 

Q: Telefonica has 90 years of history. What have been some of Telefonica’s successes?

 

A: I was working in Telefonica when the company got only its break in Spain. That was more than 30 years ago. I’ve had the privilege to go to different operations when Telefonica decided to start working in these operations. If you ask me about the successful experiences of Telefonica, it’s about the commitment and, mainly, the passion for learning. When Telefonica is operating in a country, we are trying to understand clearly the necessities of customers in that country. We are trying to use all the capabilities and learn about the professionals that are working in the country. It’s not the case that we arrive in a country and expect these guys to start doing everything we say. We try to understand and know the people, organizations, technicians, and the rest. In fact, we try to incorporate in our DNA what these people are doing and trying to improve in this country. Telefonica enhances what people are already doing in a country. We try to learn off all these countries, and we choose excellent people to work for us. You can see that our directors, CEO and CFO come from dozens of countries that we are operating in, including Argentina, Peru and Mexico. We try to increase not only revenue and customer base, but we also try to learn.

For me, the main success of Telefonica is our ability to learn country by country. When we do this, we identify growth possibilities. Sometimes it is very difficult to do it, but we are trying to move. We are a multinational. The key for Telefonica is to incorporate into its DNA the knowledge and capabilities and we try to understand the specific customers’ demands that we have in each country. For me, this is the main difference. The rest is just work, work, and work.

 

Q: What type of challenges do you face in your role? How do you tackle them?

 

A: Sometimes, when you are doing a lot of things, you forget what your challenges are. However, I try not to forget my responsibilities, which include helping country by country, our commercial teams to be competitive. We need to be sure that we can offer our customers all the services with good QoS. This implies timing the deployment well, choosing the right vendors, implementing the right processes throughout the deployment, and using the right maintenance and provisioning models.

We are a service company and a technology company. My responsibilities are to be sure that we offer the commercial teams in each country all the levels of technology they need. We are trying to be the best. This is the first point we try not to forget. The second point is we never ever take any decision that is not in the interest of our customers. If you don’t forget these two main rules, you reduce the possibility of making a mistake.

 

Q: Where is Telefonica now in terms of 4G LTE?

 

A: Two and a half years ago, Telefonica made the decision to increase its capex, investment and capabilities. We are investing in 4G evolution, FTTH and ultra-broadband capabilities, including the backhaul for our base stations. We assume these challenges today. We can affirm that we are deploying LTE in all our operations with different rates. We are very close to 60% LTE coverage in Spain, 70% LTE coverage in the UK, and 50% LTE coverage in Germany. We are also deploying LTE in all countries in Latin America. We are even deploying LTE in countries where smartphone penetration is not so high. We can’t forget that we still have customers on 3G because of the price of smartphones. Even in these cases, Telefonica is facing a very clear challenge, but we are betting on 4G LTE. So at the moment, we are rolling out 4G in all the countries where Telefonica is operating.

We are now ready. We are starting VoLTE in Germany. We will deploy it in Spain very soon. We are committed to deploying VoLTE in Latin American countries in 2015 and 2016. This is very important.

In terms of VoIP, all our customers that are working with FTTH in Spain are using VoIP. All the enterprise voice traffic that is going through our networks is using VoIP and IMS platform. So we are fully committed and trying to deploy VoIP. All the networks and core is IP. We are still using voice-switching for voice 2G and 3G. VoLTE is what matters. But we are committed. We know that the future is data. In fact, voice is data.

 

Q: What preparations have you made for 5G?

 

A: We are very active in 5G. We are very active in the Next-Generation Mobile Alliance (NGMA). The standards have been defined. We closed the final requirements in the White Paper in November 2014 in Frankfurt with big operators and vendors, and we defined the main features of 5G. If you ask me when 5G would be available, all of us would say 2020, but we can’t wait until 2020, especially the main features. Telefonica is defining the main features that will be standard in 5G and try to develop them for our customers. We are talking about Germany’s evolution to 5G. We use carrier aggregation and try to offer our customers speeds at 150 Mbps. We work very hard to reduce the latency until just a few milliseconds. We even define the services for Internet of Things or industrial internet. We are trying to get these features with capabilities we have in 4G. So we are looking at 5G and defining clearly what will be improvements from the customer’s point of view.

We recently are working in the launch of one initiative named 5TONIC what intended to become an open research and innovation ecosystem in which industry and academia come together to boost technology and business innovative ventures in the area of 5G products and services. The spirit is to become a central hub for knowledge sharing and industry collaboration in the area of 5G technologies across Europe.

 

Q: What are some of your latest service and product launches? How can your services stay competitive in the market?

 

A: Good question. If you ask me which are the more successful services that we are offering today, it is video. Telefonica decided that we are a video company. It is very important. Telefonica is the main provider of video in some countries we are operating. We are trying to be the first paid TV provider in Spain; we try to do it in Brazil; we are trying to do it in other operations. In fact, Telefonica has a dream—we are working very hard to be considered as a video company. This means that the video services are in our DNA. This is the main service we are delivering. 

When we are including the IP products in our networks, we open our networks to the OTT companies. When it comes to the main services that customers are using, to be honest, they are closer to the OTT than to the big operators. If you think the latest services you are using for messaging, maybe you will think WhatsApp. We need to solve this so we are working very hard and to offer and commercialize new services.

We don’t want to be an OTT but we are trying to change radically the value chain. We are trying to offer new services—video is an excellent opportunity—but services such as VoLTE and Voice over Wi-Fi are to be services of Telefonica. Cloud services are going to be used by our big customers with our unique platform. We are building all the pieces and trying to offer our customers some services that can’t be replicated. We are working very hard, and we are fully convinced that we will achieve it. Any operator that doesn’t get this final solution will have problems. I’m very confident that we will succeed because we are monetizing data, we are offering our customers new services (basically cloud, video and convergence), and we are even giving them the possibilities to bundle the fixed and wireless. These are something that we are doing; we are doing successfully. But we need to keep working 24 hours every day.

 

Q: How do you define the relationship between OTT and Telefonica?

 

A: We are part of the ecosystem. We need to work very closely, but the rules need to be the same for all of us. Today, the rules are quite different. Let me give you an example. Do you remember the main services that one big operator offered to customers ten years ago? Messaging and voice. All these services have been revolutionized. All the demonstrations are looking at how you offering these kinds of services—there are regulatory issues that you need to solve and so on. If you see OTTs, they are today offering messaging and voice. They are not limited; they can do whatever. The point is that operators and OTTs are a part of the same ecosystem, so we need to cooperate; we need to understand each other and work closely together. It is clear that OTTs are helping us offer more and more services and increase our user base. But the long-term perspective needs to be the same for all of us. If this doesn’t happen, it will affect telco investments. Transport requirements double every year but revenue is not growing as fast. OTTs are doing nothing in terms of investing in infrastructure. This needs to be solved. 

 

Q: What’s your next five-year development plan? What’s your focus now?

 

A: Our target for the next five years is to build the best network in all operations we are present. In Spain, we will maintain FTTH capabilities, we will cover with LTE and LTE-A, we will build all the capabilities in our backhaul, and we will evolve our cores.

Our plans now fully aligned. We are trying to build the best network country by country. This is what we have in our strategic and technological plan. We are doing this with huge efforts and efficiency. We are trying to change radically the architecture, using virtualization capabilities (NFV+SDN).

The final target is to build the best network because this is the only way to be competitive. If we build the best network, we will remain competitive. If we are competitive, we will increase our customer base and revenues. And then, we can re-invest to keep offering the best services. It’s a virtuous circle and the reason why building the best network is our strategic plan.  

 

Q: What do you think will be the new trends of global telecom industry?

 

A: We need to think it as an industry. We need to grow capex and be efficient in opex, we need to get more and more base stations, need to be in more and more roofs, and we will also need additional antennas. This is going to happen in that way. What we need to do is trying to simplify the networks.

My point is the main trend at this moment is to be clever and make our infrastructure more simple and efficient. If we don’t do it, we can’t sustain operation. The main trend is how we can simplify our architecture, how we can simplify our processes, how we think that we need to grow and evolve our networks. Let me give you an example. Virtualization is the only way that we have to simplify our architecture. If we don’t do it, we are losing levels to grow in a sustainable way. Virtualization is a necessity that we need to deploy because we need to solve it in a much simpler way how we are evolving, growing and optimizing our networks. These are the trends that we would like to follow and these are some topics that need to be covered.

Nobody can do this alone. This is going to happen if we think it as an industry and it is a clear message for the operators and vendors. We need to push. If we don’t defend our position, all of us will lose. It is very important. If we don’t think as an industry, we will go slowly and not be in the position we need to be in.

 

Q: What is your expectation for the development of the telecom industry?

 

A: Our customers ask us operators to increase the throughput every day. Five years ago 2 Mbps was the approach, today it is ridiculous. We need go through fixed access going up to 300 Mbps at least. The wireless access need to be increased to an average of up to 50 Mbps at least. We are in an industry where our customers are asking for more and more access capabilities. This is good. The point is that if our customers are asking for these, we need to build more different networks than we are building today.

The main message to the big operators is we need to work together. If we maintain our thinking that we can do it alone so that we can get advantage, we will lose the opportunity. Let me give you an example, in some countries where there are two or three big operators, we are leasing up to 40,000 base stations. In this scenario network sharing makes total sense. It is about working smarter as an industry and it will mean greater efficiency, fewer site builds, broader coverage and, crucially, lower investment in innovation.

 

Q: How do you comment on the cooperation between Telefonica and ZTE? And how do you think it will evolve in the future?

 

A: ZTE is one of the largest players in the industry. Telefonica can’t understand the changes and solve the challenges that we have without the help from companies like ZTE.

One of the key topics for us is to be sure that we are using the right vendor in each piece we are operating. We are working with ZTE in different technologies, so we are working in the transport layer, we are working in the big routers, we are evolving 100 Gbps to 400 Gbps, and we need to provide GPON capabilities. The service capability is key for us.

We need to explore the different capabilities with the radio and wireless approach, from TDD through FDD and through Wi-Fi.

If you ask me about the relationship between Telefonica and ZTE, it is that we have good momentum but also room for improvement. Nevertheless, we need to select when ZTE can help us improve. One of the very significant parts in innovation is in the hands of ZTE. For Telefonica, innovation includes many parts, such as services, GPONs, transport and devices in terms of differentiation.

To be honest, I can’t understand how I myself can do my job if I don’t work closely with ZTE as one of my main vendors. The point we need you to help us determine the right level at which you can help us. Sometimes vendors are pushing and trying to be presented in all the fields, and sometimes this is not possible. I need your help but I need you focused when you really can help me. I’ll tell you when you can help us. If we work closely and we understand when you can help us, we will be going faster. At this moment, my main concern is that we need to go faster and faster. ZTE needs to help us do it. This is my main message. How can you help us go faster in the network evolution, in the virtualization and in the transport revolution, and how can we work together on our networks? We are trying to build the best network. For me, the relationship is in good momentum but has room for improvement. Let’s improve. Let us do it together!