Market Insight

Telefónica Spain increases the value of its retained customer base, while Vodafone sheds pay TV subscribers

July 27, 2018

Maria Rua Aguete Maria Rua Aguete Technology Fellow and Executive Director, Media, Service Providers, and Platforms

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Spanish telco Telefónica managed to sustain its pay TV growth and increase its ARPU in Q2 2018. The operator ended the quarter with 3.93 million pay TV subscriptions across its IPTV and satellite offerings, up 7.3% year-on-year.  However, quarter-on-quarter the growth trend appeared to be slowing down, with Telefónica’s pay TV subscriber base increasing by 0.2% when compared to the previous quarter.

Where Telefónica has seen significant growth over the past 12 months is in average revenue per user for its Fusión bundled offerings, which generated an ARPU of €89.5 in Q2 2018, up 5.5% from €84.8 in Q2 2017. According to the operator, the percentage of its Fusión customer base with high-value packages rose 3% year-on-year to 27%. This change in customer mix, together with price increases, has contributed to the higher ARPU.

Telefónica’s main competitor in pay TV, Vodafone, reported a total TV subscriber base of 1.33 million at the end of Q2 2018, which marked a second consecutive quarter of decline for the operator, down 3.1% on its end-2017 base. Year-on-year, however, this represented an increase of 3.3%.

Our analysis

Spain is still a low pay TV penetration market, with 33% of TV households subscribing to one or more pay TV services. As a result, gaining new subscribers remains a difficult challenge for Spain’s pay TV operators, with consumers in the country generally only displaying willingness to pay for high-quality content. Telefónica’s strategic reaction to this of late has centred on the upselling of current subscribers to more premium content, and therefore focusing on retaining and increasing the value of its existing customer base. Execution of this strategy has involved investment in premium content, such as its recent regaining of control of key La Liga football rights in Spain, and its acquisition of UEFA Champions League and UEFA Europa League rights for 2018-2021. Both of these reposition Telefónica as a key player in the premium sports field. The increases in ARPU seen in the year to date suggest that investing in its premium tier is paying off for Telefónica. The operator’s original-content-driven Fusión #0 and Fusion Series packages will also have contributed to this growth.

Telefónica’s strategy differs from that of Vodafone, which has directed its focus towards partnerships with OTT services Netflix and HBO, rather than investing in premium content. This was reflected in Vodafone’s decision not to acquire wholesale football rights from Telefónica, pivoting instead towards a more basic football offering that does not include the top La Liga matches or any live Champions League. While OTT content is indeed proving popular in Spain, Vodafone’s strategy comes with the potential risk of churn of its premium sports subscribers – a proportion of which may be tempted by Telefónica’s offerings. Furthermore, Telefónica has also signed a partnership agreement with Netflix, ensuring that its service remains competitive in regards to TV and movies content also. 

Telefonica remains the top subscription video provider in Spain, followed by OTT service Netflix, with 1.8 million subscribers, and Vodafone, with 1.3 million.

Telefonica Vodafone Spain
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