BUSINESS

TRANSFORMATION AT
TELEFONICA DE
ESPANA
 INTRODUCTION
Telefonica - one of the leading telecommunications
companies in the world with major presence in Europe,
Africa and Latin America and a monopolistic presence
in the Spanish telecom industry
However, the late 1990s saw Telefonica going through
a bad financial phase due to liberalization of the
Spanish telecom industry and the entry of new players
who were providing bundled voice and Internet services
In the year 1999-2000, Telefonica’s EBITDA declined
by 10.7 percent and the operating expenses increases by
11.6 percent to €5,878 million
 CONTD...
In the year 2000, Telefonica implemented a
transformation program to improve its financial
performance and increase its declining market share
The transformation program helped Telefonica to
develop customer focus, and new, better quality
products
The program enabled the company to reverse its
declining earnings trend, and become one of the
leading broadband operators in Europe along with
an integrated communications solutions provider
 CONTD...
Telefonica’s market share in fixed telephone, broadband,
and Internet connections also showed a marked
improvement and it became a very customer focused, result
oriented organization
During the first three quarters of 2006, Telefonica de
Espana (the Spanish subsidiary of Telephonica SA)
generated revenues of €8893.9 million, with a growth of
1.7 percent over the same period in the year 2005
For the nine months ending 2006, the Telefonica group
generated total revenues of €38, 704 million and a net profit
of €5185.7 million. The net profit witnessed an amazing
increase of 59.4 percent over that of previous year
 CASE BACKGROUND
1924- Established as Compania Telefonica Nacional
De Espana(CTNE)
Monopoly over operating Telephone lines In Spain
Acquire over 70% of existing 78000 lines.
1967- Opened a satellite communications Ground
Station.
1985- CTNE became first Spanish company to be
listed in London stock exchange.
1988- Ley de Ordenacion de las Telecommunicaciones
(LOT) regulated CTNE’s new business activites.
 CONTD...

As a result CTNE adopted a new name Telefonica de

Espania SA.
1989- became a global player.
1991- Telefonica de Espana SA entered into an agreement
with Spanish Government.
Early 2000- Created two global business
Telefonica Moviles
 Telefonica Data Corporation
 CONTD...

Late 2000- Spanish economy slowed down due to

worldwide economic slowdown caused by technology
bubble burst
Same time Spanish market faced crises due to saturated
market conditions.
Adverse market conditions lead to business
transformation.
THE TRANSFORMATION PROGRAM
Designed around three modules- Growth, Competitiveness
and Commitment
Transformation was to be achieved through a series of short
term programs,(each of one-year duration), called ‘waves’
The ‘waves’ mainly comprised of a few blocks of work
which were designed by the top management, integrated
with the budget cycle, and communicated to the top 500
people in the company
The ‘waves’ were reviewed on an annual basis. Senior
executives were made the Head of each of the modules, and
were assisted by a manager
 CONTD...
In order to achieve its objectives, Telefonica de
Espana launched a program based on four parameters
The first parameter was Project Verne, which aimed
at installing 1 million Asymmetric Digital Subscriber
Line (ADSL) lines by 2003
The second parameter was Project Eficient.es, which
aimed at reducing the operating costs by 5 percent, by
the year 2004
The third parameter was Project Excelent.es, which
focused on building customer satisfaction and loyalty
by achieving excellence in quality using Six Sigma
 CONTD...
The fourth parameter was Project E-Business which
aimed at using new electronic processes to interact with
the clients
In order to face the growing competition and limited
market growth, Telefonica set three strategic priorities:
Maintain revenue through traditional business
Growth in the internet and broadband business
Progress in business transformation of the company
In 2002, the operating revenues increased by 0.5
percent and the operating income grew by 6.6 percent
and Telefonica was able to implement its
transformation process
 GROWTH
Telefonica planned to achieve growth by putting
in efforts to develop broadband capabilities and
revamp the product categories
It had begun testing the new technology ADSL
way back in 1997, recognizing the need to provide
high-speed Internet access
By expanding ADSL services, the company could
provide several additional services including
Internet applications, content, and multimedia
value added services
 CONTD...
Telefonica had a huge task of building infrastructure to
provide ADSL services. With growing demand for ADSL, the
company was installing 500 new lines everyday in the year
2000. The demand was expected to grow to 3500 lines a day
for 2001
Telefonica divided the market into 4 zones and forecast the
demand based in each zone by taking the historical data of
demand for existing products
Telefonica revamped its supply chain networks to maintain
optimum inventory levels and was able to reduce capital
investment in terms of network inventory and operating
expenses. It was able to carry out 90% of the installations
within 10 days of the request
NEW PRODUCTS & SERVICES
Voice Mails, Text messages
 2002, 11 million voice mails and 4,50,000 text
ADSL Intranet solution, Web, e-Business & net LAN for
corporate users
Video Conference & Internet gaming for residential users
Digital TV, Digital audio, Broadband for TV & PC, and
Video on demand
New Services like Holiday line, immigrant line and
prepay line
Voice packages, Tariff modules, and value added services
like Caller id, Voice mail and SMS.
 CONTD...
Enhanced IPTV service, Imagenio.
2004 it offered 40 TV channels & 15 Audio channels.
2006 it was available in 140 cities and 4 million
subscribers.
 COMPETITIVENESS
“Quality Is Our Differentiator”
• Improved quality by practicing Six Sigma, and
improved processes and development of online
capabilities
• Followed quality system that was in compliance with
UNE-EN-ISO 9001: 2000 standards
• Improving Work Process
• Launched Operative Excellence module to improve
quality of customer service.
• Used Six Sigma methodology and a 4 phased working
model was structured.
• Diagnosis >End result Model>Action Plan>Follow Up
 SIX SIGMA
First co. in Spain to adopt six sigma
Process initiated by Julio Linares at the end of 2000.
Special unit called ‘Six Sigma Office’
Francisco Alonso was appointed head of Six Sigma Unit
Top management commitment
Employees involvement in identifying projects
16 members of executive committee were introduced to
six sigma concepts
20 senior managers were trained to be six sigma
champions
21 black belts were given responsibility of initial pilot
project
 CONTD...
Implementation monitored through monthly reports & one-to-one
meeting with black belt
Employees support
Complemented customer satisfaction program
First phase- between March-July 2001- 21 projects were identified
Second phase- began by end of 2001- 80 projects
Customer satisfaction peaked after first phase
150 people involvement, 10 exclusively for six-sigma
Employees share in the profit earned
Financial aspect too was given due importance
Leaders shared experience through intranet
Linked part of variable salary to participation
Six sigma- an ease rather than responsibility
IMPROVING ONLINE CAPABILITIES
June 2000, launched Telefonica online- communicative
channel between company and its customer
June 2004, co. acquired Telefonica Data Espana
Provided data services like connectivity services that
allowed clients to share information between different
locations, internet access, internet publishing, whole sale
traffic service & outsourcing
Also there were hosting and application services like web
hosting, content delivery, security service and applications
Website www.telefonicaonline.com for customers
Developed centro de servicios, a voice based portal to
manage a wide variety of its services
 CONTD...

Started a project Hermes project in 2003-distribution

process for end customers
Project in collaboration with logistic department
Co. contacted customers on occurrence of any problems
in distribution process
Another initiative called e Attencion, all reports pertaining
to problems, complaints and the way the problems are
solved could be obtained online
Customers could make general enquiries about services
they used.
 COMMITMENT

To increase the commitment, company reorganized the

market and customer segments and came up with the set
of values

Customer Segments
Rearranging the market segments
Values
 CUSTOMER SEGMENTS

Households
SOHO
SMEs
Large Corporations
Households eg.
Basis households - basic voice services
Advanced digital households include voice with
broadband and digital home services
Aimed at converting basic customers to high value
customers
 CONTD...

SOHO
Basic and starters
Proactive and receptive
Technological and advanced

Large Corporations – Company leveraged on its expertise

in communication to meet the demand for information and
communication technology solutions
REARRANGING THE MARKET SEGMENTS

Decided to compete in 3 retail markets –

1. Voice market
2. Internet
3. Multimedia

1.Voice market – Provided discounts and news

services to attract customers
2.Internet – High quality internet and navigation and
ADSL development
3.Multimedia – Provided multimedia packages in
association with partners
 VALUES
Value based on expectation of all its stakeholders
Shareholders and investors had access to all the
information
Company aimed at providing customers with
quality and fulfillment
Company built relationship based on trust and
contributed to society
Maintained relationship with various communities
In Spain company was among the three most
valued Companies for commitment to social issues
THE RESULTS

Positive Growth @1.9% in EBITDA in 2001

Contributing Factors Being:
Price Discounts
New Packages
Reduction In Operating Expenses
Tariff Increases
By 2004 No. of ADSL connections grew to 2.5 million
With a Coverage of 95%
 CONTD...
Quality Process Initiation Led To Improvement In Service
Parameters
In 2004 The Transformation Process Was Re –launched
Through A Program Called ‘Meta Cliente’
Crece (Grow)
Impulsa (Drive Forward)
Avanza (Move Forward)
Motiva (Motivate)
 CONTD...

As Of Dec. 2004 Telefonica had over 12.5 Million Clients

Residential Users: 30-80 ARPU
Commercial Users: 50-150 ARPU
 CONCLUSION
Largest Fixed, ADSL and Mobile Phone Operator in Spain
With Market Share of
85% in Fixed Telephone Connections
89% in Fixed Broadband Internet Connections
60% of Imagenio Coverage
Total Broadband Access stood at 8.8 Million by
2008 With a Household Penetration of 60%
New Technologies and Service Alternatives With
Multi Functional and Multi Access Handsets were
Introduced.
 CONTD...

Offers Broadband Solutions in Communications,

Entertainment and Information
Registered a Rise in Profit of 65.6% (8835 Million Euros)
in the quarter ending Sep. 2010.
 PRESENTED BY
• Budhaditya Bhattacharya (09BS0000579)

• Ishan Sodhi (09BS0000918)

• Shivam Agarwal (09BS0002226)