Is it possible to win the broadband battle in Spain?

Spain’s telecommunications watchdog, Comisión del Mercado de las Telecomunicaciones (CMT), approved in 2008 a first set of proposals to liberalise the country’s fixed telephony traffic market and its prices, in an effort to prevent anti-competitive practices and promote telecom challengers against the incumbent, Telefónica. The fixed telephony regulations put forth by the CMT loosened connection charges and gave the operator freedom to decide on the price. The regulator continued to set the maximum annual increase for subscription fees, but allowed Telefónica to reduce the subscription fee.

For the fixed telephony wholesale market, the CMT proposed regulation for call origination, the service that allows an alternative operator, interconnected to the Telefónica network, to attend calls using the fixed telephone network.  The regulatory body made sure that the Spanish telecoms giant could provide two wholesale offers – the reference interconnection offer and the wholesale access to the telephone line.

What has happened almost two years after? Please take a look at the following slide:

If we see the subscribers vs. net additions per player (defined as the number of new subscribers, or gross adds, minus the number of customers that drop service, or churners) we can take different conclusions:

1. The Spanish market has been a question of one player until end of 2008. The effort to promote alternative players has clearly not worked. It’s not just that Telefónica accounts for more than 55% of total market but also that Telefónica has clearly won the acquisition battle in the market.
2. Telefonica’s acquisition rhythm has been halved in 2009, giving room to Vodafone and Jazztel which net-adds growth went over 150% and 78% each.
3. Vodafone managed to gain one position in 2 years, being the fourth broadband player in the market after buying Tele2 and outperforming in customer acquisition.
4. Orange and ONO need serious help. Having reacted after having negative net adds from Q108 to Q109, Orange didn’t manage to gain more than a 10% of the total net additions. ONO did a little bit better, but for sure bellow shareholders expectations, getting a 14% of the total net adds.

What it’s crystal clear is that it’s difficult to fight against the incumbent giant. Therefore the CMT has recently decided to cut the wholesale prices for unbundled loop access to Telefonica’s ADSL network by 25 percent. Dubbed ADSL-IP (in Spain) and GigADSL (at regional level), these services are essential for alternative operators that plan to offer ADSL services throughout the country and compete with Telefonica. CMT has also adopted a resolution to reduce the wholesale rental price of the shared loop by 31.3 percent, from EUR 3 per month to EUR 2.06. In the shared loop mode, Telefonica continues to provide the voice service, while the alternative operator offers its customers broadband services, renting only the loop segment that uses the non-voice frequency band spectrum.

Will this be enough? No. Or better asked? Will this CMT’s cut change the operator’s current trends? I don’t think so. There are alternative operators that seem to have clear which strategy to follow and that will benefit of it, but there are others that are moving in Zigzags following the competitors’ movements and that require a serious turn-around strategy.

CAPEX optimization and financial performance in addressable markets, regional expansion through indirect ADSL, retention and prevention strategies towards valuable clients and operational excellence to improve customer satisfaction would be the big suggestions that I foresee mandatory for the alternative players.

Is it possible to win the broadband battle in Spain? Some players are clearly showing there’s light at the end of the funnel trying not to wake up the sleeping giant. The future is promising but the threat is big, very big.

Best regards

CVA