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 The telecoms giant, whose revenues have dropped 13 percent worldwide
and 42 percent in Spain since 2008, has focused on fewer markets,
cut debt and invested in new high-speed networks and exclusive
television contents to try and regain its mojo.
The plan worked everywhere but at home, however, forcing Telefonica
to raise tariffs before stiffer competition and new laws increase
the risk of a backlash from consumers who have just started spending
after years of hardship.
The price increases, which range between 5 percent and 15 percent
and will take effect on May 5, should add up to 300 million euros
($326 million) to core profits, enough to meet the management's
pledge to grow operating income in Spain in 2015.
But the move could also prove just as strategic for the former
monopoly as the launch in 2012 of all-included bundles of fixed and
mobile services, which helped stabilize its client base and set the
stage for consolidation in Spanish telecoms.
Sector sources say that by attaching higher-speed internet services
to the hikes, Telefonica is sacrificing volumes in order to cash in
on its 12-billion-euro fiber optic network and cement its grip on
premium customers, who offer juicer returns.
Official data shows the company controls 84 percent of the fiber
optic market and, after buying Prisa's Canal+ unit, it will also
hold 70 percent of the pay-TV market.
Ultra fast internet and exclusive TV products are seen as the key to
winning the lion's share of the premium bundles' pie which is seen
having a growth potential of 500 percent to reach 12 million clients
and annual revenues of 10 billion euros.
"The client of these bundles tends to prioritize speed and quality
over price. Those offers are targeting the medium-high residential
segment, which is the one with higher margins and the most
attractive," said Moody's analyst Carlos Winzer.
NO COINCIDENCE
The move's timing is no coincidence, sources also say, as Telefonica
wants to take advantage of a dominant market position to bind
clients to its offers.
Spain's antitrust watchdog CNMC is set to force the firm to open up
its fiber optic network in most of Spain by-year-end and prices of
domestic football rights may sky-rocket as a result of a new sports
law due to soon be passed.
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Competition will also heat up, with Al Jazeera launching its BeIn
sports channel in Spain this summer and Netflix due to make
available its video streaming service in September.
Meanwhile, analysts see no more than one in five clients switching
to existing competitors. Teliasonera's Yoigo and Vodafone, which
bought cable firm Ono last year, have also announced price hikes
while Orange is busy buying Jazztel and unlikely to break ranks.
The British unit freshly sold, fixing Spain had also become a
necessity to hedge the currency, economic and political risks of
Latin America, where expected consolidation in Brazil and Mexico may
translate into financial pressure in the short-term.
Latin America accounts for 50 percent of revenues, or 56 percent
without Britain in the total, up from 40 percent in 2008.
Such a price-driven revamp is however fragile by nature and much of
its success will depend on how consumers respond.
"Whilst the economic recovery is strong in Spain, the risk of
pricing disruption in case of renewed economic weakness is higher,"
Barclays analysts said in a note.
(Editing by Anna Willard)
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