The double challenge of the operators: loyalty with more services and offer efficiency for tighter pockets
The waters go down in turmoil in the telecommunications market in Spain. Once the pandemic fades into the background, the real challenges of this sector emerge: customer loyalty , in which the price factor has regained great strength, and the technological challenge of 5G with the rain of investments that will be necessary so as not to miss this train. The ‘2020 Telecommunications and Audiovisual Sector Economic Report’, prepared by the CNMC, estimates that the sector invested 5,025 million euros last year.
In this context, the strong competition between the traditional operators and the ‘low cost’ has increased in recent weeks: On September 8, Digi launched its fiber service at 10 Gigs per second at 30 euros per month, although it is only available in certain areas of the Community of Madrid.
At the end of this month Orange announced the commercialization of its own 10 Gps fiber network based on XGSPON technology with WiFi 6 in Madrid, Barcelona, Seville, Valencia and Zaragoza, while in mid-October it was Telefónica that shook the residential market, through its second brand O2. The teleco launched a convergent package of fiber plus mobile at 30 euros per month . In parallel, a week ago, Másmovil announced its electricity rate ‘No schedules’, with a single price per kWh for the entire month.
In the opinion of Javier Arenzana, partner responsible for Telecommunications at KPMG in Spain, “it is foreseeable that a high sensitivity to price will be maintained, favoring the adoption of no-frills offers at the lowest possible cost.” For this expert, the migration of the market towards low cost will continue and, he points out, that “continuous improvements in operating efficiency will be essential to sustain margins.” He also concludes that complementary services (energy, alarms, health…) “will encourage customer loyalty and help sustain income.”
Industry sources consulted by ABC recognize the “great economic impact of Covid” and this “migration” towards cheaper prices for customers who had contracted convergent packages of between 70 and 80 euros. Which leads the big operators to compete through “strategies that do not harm the high-value customer, but prevent the medium from leaving.” In this regard, Esade professor Xabier Busquets estimates that there are “about 20 light operators” that rely “on third-party infrastructure and good customer service.” A model that, according to this expert, “currently, with many operators there is a risk that there will be a loss of value and lead to less interest from investors.” For his part, Professor Ricardo Pérez, from IE University, maintains that “Digi’s entry has been a shock. In his opinion, now it is up to Másmovil to move the piece. On the other hand, market sources recall the contribution of the large telecoms to the country’s GDP. For example, Orange estimates that it has invested more than 31 in the last 20 years.
a dwarfed cake
The CNMC data shows an increasingly disputed and less profitable cake for operators. The average expenditure of households with fixed, mobile and internet fell by 8%, to 50.8 euros per month, during 2020. The global turnover of the sector reached 32,617 million euros, 4.8% less. Nor does the first quarter of this year -the most recent statistic- show better figures. Revenue from retail services reached 5,668 million euros, 3.6% less. Only Másmovil and Vodafone saw their retail revenues increase.
Regarding portability, the CNMC registered 564,543 in July , 15.5% less than in the same month of 2020. Másmovil and the virtual mobile operators, which lack their own network, registered positive balances in this field compared to the rest. Even so, Movistar, Orange and Vodafone concentrated 74.6% of mobile telephony in the summer.
With this situation, the big operators put their hopes in the development of 5G and complementary services. Ricardo Pérez (IE Universitiy) believes that “we are going to see many advantages for clients”. ESIC professor Alberto de Torres believes that Telefónica or Vodafone “cannot continue alone” and foresees more mergers or sales. He compares the sector with the energy sector and urges “search for higher value-added businesses.”