On the face of it, Telefonica’s recent decision to set-up a new global, centralised ‘Digital’ unit in London is an incongruous one, akin to BT upping sticks and moving to Majorca. Yes, the firm will retain a nominal headquarters in Madrid, but Spain – where Telefonica has operated for over 85 years – is now just another unit rolled into its Europe business. Instead, it's the new London-based Telefonica Digital which will be driving the operator’s future strategy, pulling in some 2,500 employees from across its various business lines and attempting to reposition the firm as a global player in the brave new digital world.

It is, arguably, the most ambitious attempt yet by a traditional telco to evolve beyond the standard operator business model, which frequently sees MNOs derided as slow-moving dinosaurs, out-of-sync in an industry increasing shaped by OTT players and fresh-faced start-ups.

Telefonica can already claim to be more forward-looking than most of its peers. Some of its current businesses that will be rolled into the Digital unit include BlueVia (apps),Terra (online services), Tuenti (the social network dubbed the ‘Spanish Facebook’), VoIP firm Jajah, and O2 Media. The latter can be seen as something of a forerunner for the new unit, pioneering new offerings in the UK market such as O2 More (personalised services) and O2 Priority Moments (location-based marketing). 

With a strong portfolio of digital products already in place, Telefonica Digital now wants to push into new areas such as video and entertainment, e-advertising, e-health, financial services, cloud computing and M2M.

Its strategy for doing so depends on identifying, working with and ultimately investing in technology start-ups. It already has a capital fund (known as Amerigo) up-and-running in Latin America and it now wants to do something similar in Europe. And it has money to spend.

From this point-of-view, the decision to relocate to London begins to make sense. The UK capital is currently attempting to brand itself as the ‘Silicon Valley of Europe’ – with various government-backed initiatives underway to establish a digital hub at the so-called ‘Silicon Valley Roundabout’ – a reference to the Old Street roundabout area in the city that sits between London’s traditional financial district and the Hoxton/Shoreditch areas synonymous with new media and tech start-ups.

Whether London can achieve such lofty goals remains to be seen, but – leaving aside the creaking transport infrastructure and sky-high property prices – it has a lot going for it. As a multicultural hotspot, London is able to suck in budding entrepreneurs from around the world, including (thanks to the common language) many from Silicon Valley itself. It also has several logistical advantages, such as an airport destination on more flight routes than any other (Heathrow) and a timezone that straddles the US and Asia. And then there’s the small matter of next year’s Olympic Games, which has the potential to serve as a global platform for cutting-edge tech.

London can already boast some global success stories – Spotify, Last.fm and Mind Candy (the firm behind Moshi Monsters) are all based here – and the future is looking pretty bright too, as a quick glance at Real Business’ latest Future 50 list will affirm.

The only cloud on the horizon is the reported delays to the UK’s 4G spectrum auctions, which could see the country fall behind in the rollout of the next-generation network technology required to support the next phase of new services. But Europe nevertheless provides more fertile ground for start-ups in the telecoms space than the US, where mobile coverage is often patchy and regulation often murky.

Outlining the new Telefonica strategy at the recent Wired 2011 event in London, Telefonica Digital’s new CEO Matthew Key declared that: "the brightest and best don't want to work for Telefonica, they want to work for Moshi Monsters." If the operator manages to execute on its ambitious new strategy, that could soon change.

Matt Ablott


The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members