If you run your finger down the % variance column of Telefonica’s year end results, one figure leaps out at you, the 41% growth in pay TV homes it has accumulated over the past 12 months, jumping from 3.5 million homes to over 5 million in a single year.
At the heart of this is its performance in Spain. Year after year we have looked at Telefonica and concluded that its pay TV operations in Latin American were doing okay, but back in Spain they had stalled. The reverse is true today and the responsibility sits with the changes it has wrought to its pay TV service, adding OTT delivery, early US movie content in a paid service and faster fiber lines, all combined with fairly irresistible pricing. There are no less than 16 quad play offers just one click away from Telefonica Spain’s home page, which allow self-service options between €42 and €95 a month and broadband speeds as low as 10Mbps, but with most packages on 100 Mbps, with some including premiums sports channels. The average ARPU for these services are €69 a month.
The company has gone in 12 months from penetrating 12% of its broadband based with video services, to penetrating some 32% of just under 6 million broadband customer homes, in a market where there are just 17.5 million TV homes. This move has taken Telefonica from a hopeless case in IPTV to the European poster child for OTT, and the Spanish market leader in pay TV. Previously that honor would have gone to Prisa and its Canal+ satellite, IPTV and OTT delivered TV channels, which go to 1.6 million homes – but that number has been more or less steady since 2012.
The Fusion service was just launched in April using encoders from Elemental Technologies, protected using PlayReady DRM provided by Verimatrix and middleware from the UK’s Oregan Networks.
The service was branded in March as Movistar Fusion TV, available on smartphones, tablets, PCs, smart TVs with bundled 350 hours of nPVR storage and catch up services. Its latest Moviestar series which includes US content in its earliest release window served up multiscreen for just €7 a month, purely for mobile delivery – not to the TV. This has also driven mobile growth and this service it now a customer base of 3.7 million individuals and has contributed an additional 1.4 million mobile customers.
Some 21% of the “Fusion” customers have taken 100 MBPS options and 45% have IPTV.
All of this has taken Telefonica revenues in Spain to €12 billion, which is down slightly, but with the mobile business going down 10.9%, this growth in pay TV has kept wireline revenue flat, in a market which is one of the most troubled, economically across Europe.
And this is at a time when broadband customers have more or less stayed the same, up 1% to 5.9 million, something attributed entirely to falling churn.
But the big war in Spain has been about fiber, where Vodafone and Orange are also building out as fast as they can, which has driven fiber broadband customers up by 248,000 last quarter to stop at 1.3 million up from 593,000 a year earlier.
At Faultline we have gone on and on about rising capex at large cellular operators, as mobile client numbers also go up but organic revenues fall – this is a problem that all cellcos operators have to find an answer to, and it’s no different at Telefonica, except the answer has already been found in more fiber and attractive multiscreen TV. Capex grew 15.2% organically to €1.7 billion million during 2014, with the spending split between lighting up LTE spectrum and adding fiber and pay TV to the mix.
If you follow the entire cellular picture at Telefonica it spreads to its Latin American operations and its converged pay TV plan is certainly on its way there. In the fourth quarter it added a TV everywhere service for Vivo fiber customers in Brazil, and put all services on a single bill, including mobile, fixed, broadband and TV.
Total revenues were €50.38 billion, split about 50/50 Europe and Latin America, with its best growth at Telefonica Hispanoamerica, rising 18.2% over last year to reach €13.16 billion. Total mobile accesses across the Group were 274.5 million customers up 8% (2% organically). Mobile revenue was approximately €30.1 billion, largely down except for the UK and Germany.
We can expect that Telefonica can augment its Latin American cellular operations with a rejuvenated multiscreen pay TV service, which it hopes will have the same result as in Spain.