Jazztel broadens its ambitions in Spain as Retevision captures business users
When new carrier Jazztel announced its intention to offer telecoms service In Spain earlier this year it restricted itself to targeting the country’s smaller corporate users. Now it’s gunning for Spain’s big spenders
Emboldened by a competitor’s gains against former monopoly Telefonica, start-up telecoms provider Jazz Telecom SA has shifted its strategy to include Spain’s large-business end-users.
While it previously planned to target just small and medium-sized businesses, Madrid-based Jazztel now expects 20%-30% of its revenues to come from Spain’s largest companies, said Martin Varsavsky, chairman and chief executive “The emphasis has changed,” he stated.
According to Varsavsky, Telefonica’s main competitor to date, Barcelona-based Retevision SA, has successfully gained about a 9% share of the long-distance market since it began operations nationally in January; and that, he believes, bodes well for Jazztel’s expanded strategy.
Retevision did not respond to repeated requests for comment, but as of September it had signed up more than 600,000 clients and had 1 million lines in service, according to analyst sources.
Varsavsky said Retevisi6n’s success prompted him to broaden Jazztel’s targeted customers to include large businesses. “Loyalty to Telefonica in Spain is nil,” he said “People are deserting Telefonica much faster than we had imagined.”
Rob Ollerenshaw, director of market analysis for CIT Research in London, said. “It’s quite an impressive start The future looks bright for Retevision and other competitors to Telefonica. The business seems to be there, given the record that Retevisi6n seems to have achieved.”
But Retevision’s very success could also turn Spain into a very competitive market for new entrants such as Jazztel, Spanish user groups point out.
Jazztel plans to invest $900 million during the next five years to build and operate a new infrastructure in Spain, based on three fiber optic rings linking 22 major cities Construction on that backbone started this autumn. The company currently resells Telefonica long-distance services to about 800 business customers, but, following the further liberalization of the Spanish telecoms market on 1 December, has just won a license to offer interconnected services nationally, initially over lines leased from Telefonica.
Jazztel is not alone On 3 December the Spanish regulator authorized six companies, including Jazztel, to offer fixed-line services (see News In Brief, page 4). Prior to this, such services were offered by Telefonica, Retevision, Euskatel, in the Basque region, Uni2, the 69% France Telecom-owned company that offers Long-distance services, and ONO, a cable company.
Varsavsky said he expects Jazztel to begin providing interconnected long-distance traffic and Internet service on a broader scale in February In May or June, Jazztel will start offering high-bandwidth STM1 and STM4 long-distance capacity at speeds up to 40 gigabits per second to other carriers.
And, by the end of 1999, it plans to begin selling local loop services in Madrid and Barcelona on its own infrastructure Nortel Networks, of Brampton, Canada, recently announced that it won a $200-million contact to build part of Jazztel’s Spanish network (CWI, 2 November, p4) In addition, Nortel will manage the network’s operations under contract until the end of 2000
In response to Jazztel’s change of strategy, Jose Rocillo, Telefonica’s director for small and medium-sized businesses, said the incumbent operator lost customers because Spanish telecoms regulators had not allowed it to price its services as low as its competitors, though that is expected to change with liberalization. As a result, Telefonica is taking steps to tailor its marketing to a more competitive climate
“We have to convince customers price is only the tip of the iceberg,” Rocillo said. And, he believes that’s less of a factor for their largest customers. “They are very focused on the importance of technology They don’t want to put their business in other hands than reliable ones.”
Though Telefonica claims to offer superior voice and data services, Jazztel says that recent protests by Internet users in Spain are evidence that users are not satisfied. And Telefonica’s new competitors will be rolling out services during the coming year that are similar to those currently offered by the incumbent.
But analysts say Telefonica will fight hard to retain the business of the country’s large corporates “There are few large businesses in Spain,” said Ignacio Mas, principal consultant for Analysys Ltd in Paris “And you can certainly expect Telefonica to defend them tooth and nail ” According to the carrier, large businesses as defined by the European Commission-those with revenues of at least 40 million ECUs ($46.9 million)–represent only 0.2% of all Spanish companies Mas said Telefonica’s investments in Latin American carriers increase its stake in retaining large-multinational customers who do business there also.
While Jazztel has already announced cultural and sports-related marketing initiatives to differentiate itself (CWI. 20 April, p.1), some analysts question how effectively it will be able to sell its services to large customers from scratch “You’ve got to have good account teams to bring in the big players,” said Chris Lewis, principal analyst at the Yankee Group Europe in Watford, England “That’s a big upfront expense for a new player.”
In addition, Retevision’s success could hamper Jazztel. “I think the new entrants will have some difficulties due to the competition of Retevision,” said Antonio Llobet, director of the Asociacion Espanola de Usuarios de Telecomunicaciones (AUTEL), in Madrid, an association that represents Telefonica’s largest users But he added that “if they offer very high-quality, special services, or very high bandwidth, they can get some customers.”
High bandwidth is one of the key elements of Jazztel’s planned offerings According to Varsavsky, it will sell frame-relay and intranet services, local Internet access, and secure access to intranets over the public Internet ‘We’re going to offer the best Internet service in Spain,” he said “We have a focus on that There’s really a void.”
But Jazztel faces competition in this field as well, point out analysts “Everybody’s trying to do that,” said Ollerenshaw “Whether you can actually distinguish yourself depends.” He believes carriers need to partner with a systems integrator or other information technology partner to quickly capture a significant share of that IP business.
Varsavsky said Jazztel aims to eventually capture 10% of the total corporate market and 3.5% of all Spanish telecoms business. The domestic fixed-line voice service market was worth about $8.67 billion in 1997, according to CIT Research, which predicts it will be worth about $9 billion this year Varsavsky added that the company will follow its buildout in Spain with an expansion into Portugal, scheduled to start at the end of 1999 and following a strategy similar to the one employed in Spain.
Retevision’s customer base 1998
Late June 450,000
Source: CIT Research Ltd., London
According to figures due to be published in a CIT Research report, Public Switched Services. In Europe 1998, by June Retevision’s network was generating 3 million minutes of calls per day-despite users having to dial a three-digit code to access the new operator’s network via their Telefonica supplied line-with business customers representing 100,000 of the 450,000 users signed up. This represents 3% of the total business customer base according to CIT Research, which believes Retevision could capture 6% of this market by the end of 1998.
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