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Telefonica slashes its handset portfolio

Reduces number of models it will offer by more than half to cut costs and increase bargaining power against OEMs


Published: 3 November, 2011

READ MORE: Europe | Telefonica | Handset

In a move which is likely to become commonplace, Telefonica is to slash the number of handset models it offers in a bid to offset declining profit by reducing subsidies and portfolio overlaps. A more streamlined approach to handset choice, within countries and internationally, is seen as a key weapon large mobile groups must brandish, more effectively than most have done so far.

The Spanish group said it will reduce the number of handsets it offers by more than half - from 240 in its various European territories to fewer than 100, according to divisional head Matthew Key. Key is leading a strategic drive by the operator to increase its revenues from broader digital services such as the cloud, multiscreen content, internet properties like Jajah VoIP and the Tuenti social network, and new device types. He is also responsible for managing partnerships with smartphone vendors.

Large European carriers have been vocal about their desire to shift the balance of power with Apple and Google back towards the cellcos, and to reduce their subsidy bills, which eat into profits, especially where the iPhone is concerned. One tactic will be to become fussier about which handsets to sell, and to purchase important models on a cross-country basis, giving the operators more powerful negotiating positions and forcing the OEMs to compete more aggressively for their favors. When the digital unit was being set up, "there was a dawning reality that this was a necessity," Key said.

According to his plan, which is being proposed to the Telefonica management, the group will buy devices centrally for Europe, and potentially for its vast Latin American businesses in future. Multinational cellcos have been slow to deploy this obvious tactic, though Vodafone now buys nearly all its handsets at group level. Indeed, Telefonica O2 has only 12 handsets which it sells in all its markets. However, it has been particularly active lately in forming 'cellco buying clubs' to procure devices collectively and further enhance bargaining power. It has partnerships with NTT DoCoMo in Japan, China Unicom and others.

The largest suppliers to Telefonica are Apple, Nokia and Samsung, and they may expect to consolidate their position while more niche vendors lose out, though Nokia's conversion to WP7 will be a risk, in terms of how far the Spanish group sees demand for the newer OS. Reducing the range of handsets brings cost efficiencies and negotiating power, but it also heightens the risk of choosing the wrong models and this may play against Telefonica taking a significant chance on the largely unproven WP7, or Nokia's Lumia. "The whole concept of the phones you stock as an operator is that it's largely consumer driven," Kevin Yates, an analyst at RBS, told Bloomberg. "If they were to get it wrong and only stock the phones that people didn't want, they are going to be in trouble. That's the risk."

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