1) The telecommunications market in Spain has reached maturity with little room for growth, forcing companies to engage in price wars that are unsustainable and reducing profits. 2) Customers now value low prices and free phones over quality and are educated to seek the best deals, not long-term relationships with providers. 3) For telecommunications companies to generate sustainable customer pools, they must differentiate by transforming from voice/text service providers to companies that deliver valuable content and capabilities through advanced, customer-driven applications.

1. Strategic Analysis of Telecommunications Sector in Spain Ismael Soto Cantero
Problem statement:
Fig.1
Is some value in voice services in the We find that during the last four to five 1,20
1,10
telecommunications sector? years, the competitive edge in the 1,00
Telco sector in Spain has been based on 0,80
0,81
The telecommunications market in a price war. This price war continues till 66,91%
0,60
Spain is already a mature market, now, and consequently, the profit 50,52%
specially in its mobile tranche. There is margin of the companies operating in 0,40
42,83%
barely not room for new customers in the sector is continuously under a non- 0,20
30,64%
the mobile sector to drive organic sustable path, that will end with more 0,00
growth in the following years [Fig.1]. reduction in profits and layoffs.
2002 2003 2004
# lines per hab.
2005 2006 2007 2008 2009 2010
% lines postpaid mod.
% lines prepaid mod.
Problem analysis:
Fig.2
What is the point here? meanwhile, 46% chose free phones as 120,00
113,00
the second driver. Therefore, the 110,00
100,00 / 100,00
The economic environment is driving current customers have been educated
100,00
customers to look for the best value- in a world that is not rewarding with 97,00
price portfolios within the market. long terms sustainable profits to the 90,00
87,90
Nonetheless, the long standing process telco companies. On the contrary, as 80,00
of fares reduction is not sustainable for we can see, the income per line is 76,20
70,00
much more time due the costs consistently falling during the last years
60,00
associated with the organisational [Fig.3]. This is driven by both, the Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q3 2010
Home lines Business lines ACPI
restructuring process and its associated economic situation as well as pure
layoffs [Fig.2]. customer culture changes. 320,00
Fig.3
307,44
303,64
300,00
In a non-scientific survey among Besides that, we asked these customers 292,15
283,01
students from Carlos III University, we about whether they will forget or not, 280,00 283,41
asked which kind of services you value the problems that they have could had 260,00
269,14 271,78
most in order to take a decision while with its previous operator. Around 43% 240,00 238,18
choosing a telco company. Non- answered that they will not forgive
220,00 222,90
surprisingly, 75% of them chose low these inconveniences, and probably,
fares as main driver of their decision, will not return to their former operator
200,00
2002 2003 2004 2005 2006 2007 2008 2009 2010
Income per mobile line (€)
Strategic solution:
What can telco companies do to Then, if you were a company in this But this is complex, it means, that you
generate a sustainable customers´ sector, how will you differentiate from will transform your company, as IBM
pool? your competitors without continue to did at the end of the 90´s, but in an
the paranoid race to reduce bottom- quite opposite way; from services to
Voice and text messaging have become line via price cuts? technological value. You have a
commodities, customers do not see company business model based on old
value on them; and therefore, they are The solution is based on differentiated developed services, you will maintain
not taking in account variables as the content within your mobile phones. As them, but you will turn your bottom-
quality of voice and network a manager of a telco company, you line milestones into a technological and
connectivity as they used to do 5 or 10 should be able to transform your firm cutting-the-edge applications company.
years ago. from a voice-text service provider to a
content and capabilities deliver. The As I like to say, from a telco company to
In plain words, customer are willing to more advanced, customer-driven and a research one. Difficult but profitable
pay for telephone models, reward problem-solution oriented your in the long term run.
membership programs and, overall in services environment is, the closer you
these times, a Price-balanced portfolio. are to win the competitive war.