Telefónica Enters IP TV Joint Venture with Sogecable

Spanish leading fixed-line group Telefónica`s new joint venture with the TV broadcaster, Sogecable, will launch a joint triple-play service, bundling the companies’ respective voice telephony, broadband access and TV offerings. According to the terms of the deal, the partners will commit to offering joint telecoms and digital satellite TV services, as well as buying pay-TV content. Telefónica will provide its Duo service, consisting of ADSL and voice telephony services, while Sogecable will offer satellite-TV channels provided via the Digital+ platform. Customers will be invoiced for the respective services separately by each company, with customer services provided by their corresponding centres. The financial details of the four-year non-exclusive deal have not been revealed.

Branded Trio+, the service will be commercially available from 30 November, when the restrictions on the operators’ joint services expire. The regulatory ban on joint services dates back to 2003 following Sogecable's acquisition of Telefónica`s digital satellite platform, Via Digital. As part of the deal, Telefónica then acquired a stake in Sogecable, which now stands at 17.3%.

Outlook and Implications

Telefónica Taps into Sogecable Experience: The partnership will enable Telefónica to leverage Sogecable´s exposure in the pay-TV market in an effort to offer a competitive triple-play package. Sogecable´s content-buying experience will be of particular value to Telefónica. The agreement to join forces to buy pay-TV content in Spain means that Telefónica has successfully hurdled what Global Insight sees as the major obstacle for telecoms operators in providing successful IP TV packages. In addition to expanding the TV-content portfolio offered via its existing IP TV platform, Imagenio, with satellite pay-TV programming, Telefónica will also benefit from access to Sogecable´s customer base on Spain's only satellite digital-TV platform, Digital+—which reached 2.065 million subscribers at end-March. It was also have access to its free-to-air channel, Cuatro, launched in November 2005. Despite Imagenio´s successful and expanding customer base, it lacks a strong content offering to gain mass-market momentum. Imagenio, which was the country's first IP TV service, attracted 418,618 IP TV customers at the end of March this year, which represents 67.3% year-on-year (y/y) growth. It has been Europe´s second-most dynamic IP TV platform behind France Telecom (see Spain: 21 May 2007: Telefónica Attracts Over 400,000 Imagenio Customers and Spain: 20 September 2006: Telefónica Revises Imagenio Packages). The deal does not block the incumbent from creating partnerships with other content providers.

Sogecable Piggybacks on Telefónica´s Broadband Platform: The partnership with the incumbent is key to Sogecable´s prospects, as the deal has the potential to shape its future convergent strategy. It enables Sogecable to offer its existing and future customers broadband, ADSL and telephony services on the top of its core TV products. With access to Telefónica´s broadband customer base standing at 7 million at end-2006, Sogecable is now geared to gain a share of the country´s dynamically growing triple-play base. The company is also better positioned to face its major rival, the cable TV operator Ono, which expanded its reach after its deal to resell broadband services via Telefónica's unbundled local loop (ULL) (see Spain: 11 October 2006: ONO Registers 0.5 mil. Broadband Subscribers). Sogecable´s deal with Telefónica is non-exclusive, which will enable the company to look for other distribution platforms. In 2006, Sogecable signed a mobile-content deal with the country´s number-two mobile operator, Vodafone Spain, according to which the pay-TV operator provides 10 digital TV channels for Vodafone´s mobile TV platform (see Spain: 28 December 2006: Vodafone España, Sogecable Team Up for Mobile TV).