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Business: Third time lucky for the Telefonica boss exploring brave new digital worlds(Observer (UK) Via Acquire Media NewsEdge) Matthew Key's career has been marked by three big bets. As head of the O2 mobile network in the UK, he decided to back the 2007 reopening of the Millennium Dome, pitching the idea to his board three times before getting the nod. With the rebranded O2 successfully brought back to life, he signed an onerous but exclusive two-year deal with Apple to bring the iPhone to Britain. It was a gamble that paid off in spectacular fashion, as 3 million high-spending customers flocked to the network. For his third spin of the wheel, Key is leading the most explicit effort yet by a mobile phone company to participate in the digital goldrush. In September last year he left his role overseeing 30,000 staff as European chief executive of Telefonica, O2's parent group, to run a newly created division designed to house just 6,000, working in a rather random assortment of internet and television businesses collected by the sprawling Spanish telecoms firm. "The chances of success are not 100%," says Key, in his first interview since taking the job. "I'm going to give it my best shot and I think we've been set up to succeed." He will present his plans for Telefonica Digital to the City on 5 July. Key is on a mission to make a "material" difference to the mothership's bottom line, and will operate a "shadow" balance sheet, declaring profit and loss probably every half year. Telefonica's revenues from non-traditional business lines could be around euros 5bn (pounds 4bn) by 2013, according to management consultant Arthur D Little. Not insignificant, even for a company bringing in euros 62bn a year. There will be new products and services in seven areas: financial services, healthcare, advertising, media, security, cloud computing, and mobile internet connections in cars and utility meters (also known as machine-to-machine connections). There are half a dozen existing companies under his stewardship, including Latin American internet TV company Terra, which will be broadcasting dozens of Olympic channels this summer; a satellite broadcaster headquartered in Peru but operating across the region; Spanish social network Tuenti; and the UK discount mobile brand giffgaff, whose online helpdesk is run by its own customers. And then there is the search for the next Instagram - the photo-sharing service launched 15 months ago which has just been bought for $1bn by Facebook. Telefonica's technology incubator, Wayra, is a year old but already has bases around the world, including London, where up to 20 startups will be given office space and access to Telefonica's technology - and, ultimately, its 300 million customers worldwide. In Key's mind, digital represents one of the best chances of a return to growth. In western markets, mobile networks are waking up to the fact that their best years may already be behind them. Once rated as growth companies, they are now more likely to be viewed as utilities. Across the industry, revenues are flat. The recession is forcing prices down in Europe. Emerging markets in Latin America and Africa are making up for the shortfall, but only just. Telefonica's revenues in Spain were down 16% in the first quarter of this year. With net debt of euros 56bn to service, Telefonica cut its dividend last year and analysts believe it may soon be forced to do so again. "We have to get into the mindset of exploiting the future rather than just protecting the past," Key says. This means being prepared to work with other mobile networks as well as internet companies. Telefonica recently signed its largest deal with a car company, with General Motors. Its network will connect vehicles to the internet so that they can be located by the emergency services and have their components remotely monitored. The concept will be extended to motor insurance this autumn, with a product that tailors premiums according to where, when and how fast a vehicle is driven. Also coming in September is a personal alarm currently being used by the NHS to monitor patients with Alzheimers or dementia. When the wearer strays outside a set area, an alarm is sounded with their carer. One of the bigger opportunities is mobile advertising, particularly through promotions and coupons. In the UK, almost half of O2's 22 million customers have agreed to share their information for some form of marketing. Brands are expected to spend around pounds 300m on mobile marketing this year, and O2 will take a significant chunk of that. Mobile networks have repeatedly tried and failed to make money from the internet. Telefonica's purchase of Big Brother production company Endemol during the dotcom boom was seen as a strategic blunder. The company was sold after seven years, for euros 3bn less than its purchase price. Key says he has been given the autonomy to succeed and that his work is essential to the company's future growth: "We will not be successful without Telefonica, and Telefonica will not be successful without us." His division will have swanky new offices just off Regent Street, but its creation does not require a big outlay. If Key fails to move the dial, the damage will be reputational rather than financial. If he finds the next Instagram, the rewards will - for a change - be counted in billions of euros rather than dollars. Captions: Matthew Key: finalising his plans for the Spanish telecoms firm's digital division. (c) 2012 Guardian Newspapers Limited. |