Telefónica Tech: the small but perfectly formed part of Telefónica Group’s FY23
Running a telco firm is expensive in terms of infrastructure costs. As the industry finally weans itself off copper and continues to implement full-fibre and 5G technology, the investment has been staggering: consulting firm Deloitte estimated in its 2023 report “Decision time for Europe’s telcos” that telcos pend over 20% of their revenues on capex. The European Telecoms Network Operators’ Association (ETNO) confirms these estimates, reporting investments of EUR59.1 billion in 2022. Many have started to diversify their services - implementing lower-cost, higher margin operations that take advantage of emerging demand for complex cloud, AI and managed services.
Headquartered in Madrid, Spain, Telefónica Group is one of the world’s leading integrated telecommunications firms. Like many other companies in the sector, it has accumulated debt due to its ongoing network investments. Its FY2023 revenues (announced this month) grew at just 1.6% year-on-year to EUR40.65 billion, with net debt standing at EUR27.35 billion. In January 2024, the Group announced that it would be laying off 3,400 workers by 2025 as part of an effort to reduce costs. This follows cost-cutting by other European rivals: in 2023, UK-based BT announced it would reduce it’s global workforce by 55,000 to create a “leaner” organization.
But there was some good news for Telefónica: the performance of Telefónica Tech, the Group’s digital business unit that offers cybersecurity, cloud, internet of things (IoT), Big Data, Artificial Intelligence (AI) and blockchain solutions. These product and services can be operated at a lower cost and achieve much higher margins than traditional telco offerings, and this is reflected in Telefónica Tech’s impressive 26.7% revenue growth in 2023 vs. 2022. But, while this brought in EUR1.88 billion (an additional EUR376 million over the previous year), it still only represents 4.6% of the Group’s total revenues in 2023.
Executives from Telefónica Tech had a visible presence at this year’s Mobile World Congress, and provided a positive view of the company’s future, including how it plans to address the opportunity around edge computing. In particular, Daniel Ribaya, the firm’s Cloud Products & Services Director, highlighted the advantages of hybrid cloud and Telefónica Tech’s cloud platform and management services. In addition, the announcement of the company’s NextDefense cybersecurity platform provides additional tools for its portfolio of Managed Security Services (MSS), enhanced using machine learning and advanced analytics.
The Quick Tech Take
Telefónica Tech should be recognized for the significant gains it has made in the last year. It has taken advantage of its own and the wider Group’s infrastructure investments in sub-sea cabling, datacenters and high-margin services to build a modern business outside of the traditional telco model. Borrowing from the strategies of successful managed services, systems integrators and cloud services providers, there is no reason why Telefónica Tech should not expect its double-digit growth to continue, given its roadmap to develop its cloud, cybersecurity, AI and analytics products and services.
