Telefonica S.A.TEF recently announced its plans to launch video services in seven new Latin American markets in 2016. If things go as planned, it will make Telefonica the largest pay-TV operator in the Spanish and Portuguese TV content space.
The services will primarily comprise Video on Demand (VoD) and linear TV services and will be introduced in phases in Ecuador, Uruguay, Panama, Costa Rica, El Salvador, Guatemala and Nicaragua. Moreover, the services will come with Telefonica’s self-produced exclusive content. At present, the company operates in Argentina, Brazil, Chile, Colombia, Peru and Venezuela through Internet Protocol TV (IPTV), Direct to Home (DTH), Community Access TV (CATV), Video on Demand (VoD) and Over-the-Top (OTT) technologies.
Growth Prospects
In terms of growth, Telefonica’s story has been impressive so far. The company has increased its market share by 17% in the regional pay-TV market, buoyed by its Movistar brand in Peru and Vivo TV in Brazil. Moreover, Internet TV is gaining momentum among the masses rapidly on the back of low cost benefits and flexibility of use in a number of devices, including mobile phones and tablets. Given that the company boasts an extensive wireless network with over 30,000 LTE sites, with 96% of its 3G and 4G mobile sites connected with ultra-broadband technology, it enjoys reasonable competitive advantage in the operation of its Internet TV services.
Moreover, Mexico is the largest economy in the Latin American region. Telefonica recently announced that its Mexican unit is open to enter into a wireless network sharing agreement with its rival operators. Considering that the wireless penetration rate is relatively lower in the country, business agreements with formidable rivals like America Movil S.A.B. de C.V. AMX and AT&T Inc. T may bode well for Telefonica before the market reaches saturation.
The Bottom Line
Apart from enjoying a strong foothold in Latin America, Telefonica serves as a major player in Europe as well. With the acquisition of E-Plus in 2014, it has positioned itself as the largest mobile service provider in Germany in terms of subscriber count. Moreover, the company oversees fixed and mobile telephone, broadband Internet, pay-TV, and value-added and data business services in Spain (Espana), the UK, Ireland, the Czech Republic and Slovakia under the O2 brand name. However, increased competition in the Latin American markets, economic slowdown in Europe and telecom regulatory hurdles in prime markets like Brazil and Mexico can hurt the company’s prospects, going ahead.
Zacks Rank
Telefonica currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same sector is Windstream Holdings, Inc. WIN, with a Zacks Rank #2 (Buy).
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