Telefonica’s Gamble: Will Putting Its Digital Assets Into One Unit Work?

The operator Telefonica — owner of many mobile and fixed businesses spanning from Latin America to Europe — is getting its digital house in order. The company has announced it is reorganizing a disparate group of digital assets into a single business unit, to be called Telefonica (NYSE: TEF) Digital, and transferring 2,500 employees in the process.

The aim: to generate more revenue from these products in the “medium and long term future”. The challenge: whether these units can work together when they have not before.

The reorg is ambitious, to say the least: it will involve taking a lot of different businesses that have been built up or acquired over a number of years, but do not necessarily march to the beat of the same drum: it will include not only Telefonica’s New Global Services Unit (enterprise services), but also the internet portal Terra, the internet-calling company Jajah, the “Spanish Facebook” Tuenti, R&D operations, and many different mobile assets such as BlueVia (its app venture) and mobile advertising initiatives. The Digital unit will oversee activities covering both Latin America and Europe — the first time the operator has tried to centralize the operation of these services on a geographical level.

Telefonica Digital will be headquartered in London, with regional offices in Madrid, Sao Paulo, Silicon Valley and “certain strategic hubs” in Asia. It will be led by Matthew Keys, who previously had been running all of Telefonica’s operations in Europe. Before that role, he was an executive at mobile operator O2 in the UK, where, among his achievements, he secured a lucrative deal to be the first to carry the iPhone in the UK back in 2007.

On the positive side: this sounds like a fantastic experiment in convergence and getting the most out of Telefonica’s many investments.

“Its mission will be to bolster Telef√≥nica’s place in the digital world and leverage any growth opportunities arising in this environment, driving innovation, strengthening the product and service portfolio and maximising the advantages of its large customer base,” the company notes in a release announcing the new division.

Indeed, you can imagine how BlueVia, the company’s initiative to develop more apps, could be a useful contact for the Global Services people to sell, say, medical apps into a heath organization. Or developing services that leverage NFC technology with some of Telefonica’s media and entertainment offerings. Or selling new mobile advertising opportunities to those advertising on its broadband networks. Those are connections that might not have been as easy to make in the company as they will be now.

It is also being driven at least in part by Telefonica’s search for more revenue from its digital operations: Telefonica noted in its last quarterly results that one of its fastest-growing segments is data, specifically mobile data, which was up 18.5 percent compared to the same quarter one year ago. That’s growth that Telefonica needs to milk for more revenues, especially as ARPUs have been either stagnating or declining in many of the markets that Telefonica serves.

On the negative side: it will put more focus and more expectation on a group of businesses that have not been performing as well as they could have been.

The company has 230 million subscribers on its mobile networks alone, and nearly 300 million when you count fixed and wholesale subscribers. Yet it’s hard to see how and if many of these businesses that are now a part of Telefonica Digital have leveraged that size up to now.

Looking at the company’s last quarterly results that came out in July, there is very little mention of Tuenti, Jajah or the others. Most of them have had their results consolidated into bigger, regional divisions, so it is difficult to see how much of a positive or negative financial impact they have had.

In mobile, there have been a few ambitious attempts at global digital services. At least one — the now-defunct app development project Litmus) — had come to very little. Interestingly, that effort was UK-only, and part of the reason is shut down was so that Telefonica could refocus its apps effort on a more global scale, which it has done with BlueVia.

Only time will tell if history will be changed or repeated with Telefonica Digital: “Too early to know the detail,” James Parton, a marketing executive from BlueVia tells us, but he is upbeat nonetheless: “All sounds very positive.”