Telefónica executives will wake up to a much harsher competitive climate in their home market this morning, with the sale of Auna's mobile and fixed-line assets to separate industry buyers.
On one side the sale of Amena, Spain's third-largest mobile operator by market share, to France Telecom's Orange unit has turned what was already a credible competitor into a threat on a par with Telefónica's main rival in the mobile arena, Vodafone.
On the other side, Ono's acquisition of Auna's cable and fixed-line business will produce a company with the geographical spread and marketing and technological edge to give Telefónica another headache in fixed voice and broadband services.
“I think things do get more competitive [for Telefónica] in the fixed and mobile sides and we are likely to see that over the next few quarters,” said Mark James, telecoms analyst at Nomura in London.
Telefónica has seen its dominance of the Spanish mobile market cut in half, to 50 per cent, since the emergence of real competition in the late 1990s.
Churn rates in the past year have gained speed with the introduction of number portability. Vodafone has been the most aggressive, taking 30 per cent of the market, leaving Amena with about 20 per cent.
The Spanish mobile market is one of the most attractive in Europe, largely due to the presence of only three players. But things could get more challenging later this year if the regulator decides to force the incumbents to open up their networks to so-called virtual operators. On the fixed-line side, Telefónica remains dominant with a market share of around 80 per cent but so far competition has been limited with Ono and Auna lacking the reach and scale to tackle the incumbent head-on.
The competitive threat from Wanadoo, France Telecom's fixed-line business in Spain, will also be reinvigorated as the French company uses its newly-acquired mobile phone asset to deploy its new “triple-play” strategy the combination of fixed-line, mobile and internet offerings.
Although not all analysts are convinced by the convergence model, Marta Muñoz Méndez-Villamil at Ovum says the threat posed by France Telecom and an enlarged Ono should worry Telefónica.
“Broadband services are a key growth area for Telefónica in the Spanish market,” she said. “Telefónica will have to make some fast decisions regarding its converging strategy if it wants to keep ahead of the game.”
If proof of Telefónica's difficult environment were needed, Wednesday's flat profits from its mobile subsidiary reflected in part the pressure on margins as the company spends heavily on marketing and technology upgrades.
Telefónica argues that its global diversification, centred on Latin America, provides a buffer against intensifying competition at home. “We've had seven years to learn how to compete in the home market, and have expanded into 40 countries over the same period,” said one official. “In the process we've also learned to follow as well as lead. We have enough faith in ourselves by now to take on whatever comes our way.”