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Roll On, Digital Reorganization. Telefonica Posts First Loss In Nine Years

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Telefonica (NYSE: TEF) has put its digital eggs into one basket — centralizing all its global digital operations into one new unit — and with today’s results it’s easy to see why: the company today released some dismal results for some of its legacy businesses — namely in its home market of Spain — which have resulted in the company today posting its first loss in nine years.

Telefonica reported that quarterly sales grew by 3.7 percent compared to the three months ended September 30 last year, to a total of €15.8 billion ($21.6 billion). But in that time the company saw a drastic decline in its net income: down by 108.5 percent to a net loss of €429 million ($585 million) compared to a profit of €5 billion last year. The first loss in nine years for the company — Europe’s biggest carrier — was also due in part to job cuts. In countries like Spain, an employer has to pay significant charges when making employees redundant.

In Spain, which makes up nearly a quarter of the company’s sales, Telefonica saw its revenues decline by 8.8 percent to €4.3 billion, with subscriber declines in almost every single retail service except for contract mobile subscriptions and pay-TV.

In Europe, where Telefonica has holdings in the UK, Ireland, Czech Republic, Germany and Slovakia, the news was somewhat brighter: subscribers grew in every category except for narrowband fixed access, although the company still posted an overall revenue decline for the division: down five percent to €3.9 billion ($5.3 billion).

Telefonica says that growth at the moment is being driven by two things. The first is its holdings in Latin America — which like other emerging markets are still in the early stages of mobile data and broadband adoption (a trend we saw also driving growth at Vodafone earlier in the week). Revenues in LatAm rose by more than 18 percent compared to a year ago.

The second is mobile data: Telefonica says that mobile data across its footprint has grown by 19.6 percent, and now makes up 30 percent of the company’s mobile service revenues — significantly more than its nearest telecoms rival, Vodafone (NYSE: VOD), which earlier this week reported that data accounts for 14 percent of its service revenues in mobile.

Within the category of mobile data, Telefonica says that 50 percent of its revenues are coming from text messaging, with the rest accounted for by services like email, mobile web access and app usage on mobile data networks.

Telefonica, which stole a march on several of its competitors years ago when it became the first to offer the iPhone in Europe (via its O2 operation in the UK), has tried to continue its mobile data and smartphone momentum with a similarly aggressive line of devices and plans to use them. It did not break out what the penetration of smartphones are among its wider mobile user base although it pointed out that in the UK smartphone penetration now stands at 36 percent.

So now that Telefonica’s pinpointed mobile data as one of its key growth drivers, it will be worth watching to see whether it can further capitalize on that in the future. Telefonica’s new digital division is being headed up by Matthew Keys, the ex-O2 executive who has now been moved over from his most recent job as head of Telefonica Europe, and it will serve as an umbrella group to develop and commercialize all things new, from mobile advertising to NFC and IPTV services.